Scheduled Coastal Maritime Passenger Services in the European Union: A Comparative Legal Analysis of Croatia, Greece and Italy

3.1. Public service intervention through PSO/PSC arrangements / Intervencija javne usluge na temelju obveza javne usluge (PSO) i ugovora o javnoj usluzi (PSC)

The first strand of research addresses public service intervention through public service obligations and public service contracts (PSO/PSC), which are key instruments for ensuring the connectivity of remote islands and coastal areas. Chlomoudis and Pallis [8] analysed the effects of Regulation 3577/92, which liberalised maritime cabotage in the EU, and concluded that PSOs are crucial for the accessibility of remote regions, but are often used in a way that limits market competition. Chlomoudis, Kostagiolas, Papadimitriou and Tzannatos [9] provided a critical review of PSOs, pointing out that in practice they are often awarded without real competition, with subsidies that can exceed real needs and distort the market. These papers emphasise the need for greater transparency and uniformity of rules in the European Union.

3.2. Passenger rights and safety / Prava putnika i sigurnost

The second part focuses on passenger protection. The European Commission’s evaluation study [10] on the implementation of Regulation (EU) No 1177/2010 found that it establishes minimum passenger rights (such as information, compensation and assistance for persons with disabilities), but that implementation differs significantly across Member States, while passenger awareness of those rights remains low. Hystad, Olaniyan and Eid [11] analysed passenger risk and safety during sea travel. Their results showed that younger passengers have less safety knowledge compared to older passengers. Their findings suggest that travelling only short distances is associated with reduced awareness of information crucial for safety on board.

3.3. State aid and market competition / Državne potpore i tržišno natjecanje

The third strand concerns state aid and competition. Ubillos, Sainz and Payan [12] studied the application of state aid rules in maritime transport and concluded that aid is often necessary to maintain these routes, but the line between permissible compensation and prohibited subsidy remains unclear, creating legal uncertainty.

Overall, previous research confirms that scheduled coastal services in the EU constitute a complex system which economic, social, legal and environmental factors are intertwined. For this reason, the literature highlights the need for an integrated approach that considers both market logic and public interest, alongside sustainable development objectives. Previous research shows that the EU regulatory framework continues to balance market competition with the protection of the public interest. Finally, recent research increasingly links legal aspects to new challenges, such as climate regulation, decarbonisation and the requirements of the “Fit for 55” package, which raise questions about the proportionality of obligations imposed on small operators in coastal transport.

The reviewed literature confirms that scheduled coastal services in insular regions are shaped by a constant interaction between market principles and public service intervention. Nevertheless, comparative legal analyses focusing on how Member States operationalise PSO/PSC schemes within a common EU cabotage framework remain less developed. This provides the rationale for the present comparative analysis of Croatia, Greece and Italy, conducted under the same EU legal baseline but within distinct national regulatory traditions and governance arrangements.

4.1. Treaty on the functioning of the European Union / Ugovor o funkcioniranju Europske unije (UFEU)

The legal context for public intervention in scheduled coastal services within the internal market is framed primarily by Articles 14, 93, 106 and 107 TFEU. Article 14 establishes the role of services of general economic interest (SGEI) and the requirement that they be operated under conditions enabling the fulfilment of their tasks [13].

Article 93 recognises, in the transport sector, the compatibility of certain forms of aid, including compensation for the discharge of public service obligations. Article 106 provides that competition rules apply to undertakings entrusted with SGEI only insofar as such application does not prevent the performance of the specific tasks assigned to them, while Article 107 sets the general state aid discipline and its exceptions [13]. Read together, these provisions provide the constitutional basis for reconciling internal market principles with continuity of service needs in insular regions, primarily operationalised through PSO/PSC mechanisms.

4.2. European Union Council Regulation 3577/92 / Uredba Vijeća Europske unije 3577/92

Council Regulation 3577/92 of 7 December 1992 on the application of the principle of freedom to provide services to maritime transport within Member States (hereinafter: Regulation 3577/92) constitutes the core EU instrument governing market access for maritime cabotage services [14]. It lays down the principle of freedom to provide maritime cabotage services within Member States on a non-discriminatory basis, subject to compliance with applicable cabotage rules, while recognising that market provision alone may be insufficient to secure regular services to, from and between islands [5]. Accordingly, Article 4 of Regulation 3577/92 allows Member States, by way of exception, to impose a PSO or to conclude PSC as a condition for the provision of island cabotage services [14]. Where PSCs are used, procedures must be transparent, publicly advertised, and must not hinder the development of competition [15].

From the perspective of state aid discipline, compensation under PSO/PSC arrangements must be structured to avoid overcompensation and ensure transparency and objectivity. This means that public service obligations must be clearly defined, criteria for calculating compensation must be determined in advance, and compensation must be limited to what is necessary to cover the net cost of fulfilling the obligation, taking into account relevant revenues and reasonable profit [16]. These principles form the legal benchmark against which national PSO/PSC arrangements in Croatia, Greece and Italy can be assessed, particularly regarding tender design, compensation parameters and supervisory practice.

4.3. Regulation 1177/2010 / Uredba (EU) br. 1177/2010

Regulation (EU) No 1177/2010 sets minimum rules on passengers’ rights when travelling by sea and inland waterways, including non-discrimination in transport conditions, assistance to persons with disabilities and reduced mobility, rights in cases of cancellation or delay, information duties and complaint handling [17]. Although not cabotage specific, these rules are directly relevant for scheduled coastal services, as they set minimum passenger-protection standards that national PSO/PSC designs must operationalise through service conditions and contractual enforcement.

On this basis, Section 5 outlines the EU cabotage framework and its main flexibility mechanisms of flexibility, which then serve as the immediate legal backdrop for the country-by-country analysis in Section 6.

6.1. Republic of Croatia / Republika Hrvatska

The Republic of Croatia has a highly indented coastline and one of the largest archipelagos in the Mediterranean, encompassing almost all islands of the eastern and central Adriatic. Islands are recognised as areas of special national interest and of significant natural, economic and tourist potential, and investment in their development has increased in recent years. Croatia counts 1,246 islands, islets and reefs, occupying 5.75% of the mainland area. Due to pronounced indentation, the islands account for 69.5% of the coastline. The indentation coefficient is 11.1 [18]. Forty-nine islands are permanently inhabited [19], and regular connections are ensured through a network of scheduled coastal services, linking 73 islands with 22 mainland ports [20].

Regular and occasional coastal maritime passenger transport is governed by a set of laws and implementing instruments, with the Act on Transport in Regular and Occasional Coastal Maritime Transport (hereinafter: the Maritime Transport Act) as the central statute [21]. The Act regulates the system of public scheduled maritime transport ensuring regular maritime connections between inhabited islands and the mainland, as well as between inhabited islands, and is aligned with the EU regulatory framework, including Regulation (EEC) No 3577/92 and Regulation (EU) No 1177/2010.

The Maritime Transport Act entered into force in February 2022. Its Article 1 defines the subject matter and scope of application, and the Act also regulates the activities, powers and operation of the Agency for Coastal Scheduled Maritime Transport [21], the national body responsible for tendering, contracting and supervising the provision of public scheduled services on state ferry, ship and high-speed boat lines within the scheduled coastal services system [22].

The principle of freedom to provide services in maritime transport is reflected in Article 9 of the Croatian Maritime Code and Article 5(4) of the Maritime Transport Act, which equate Croatian shipowners with shipowners from other Member States as regards access to maritime cabotage in Croatia [21,23]. The performance of cabotage is also subject to specific national requirements concerning crew composition, working language and living and working conditions on board, notably for ships up to 650 GT in coastal cabotage and for ships engaged in island cabotage, with specific exceptions for certain cargo voyages. These requirements are further specified in the Ordinance on the conditions for performing maritime cabotage in the Republic of Croatia [24].

The application of PSO/PSC mechanisms within the Croatian system is governed, in particular, by Articles 19, 21 and 23 of the Maritime Transport Act. These provisions require that state, county, inter-county and local lines, as lines of general economic interest, be established only after public consultation with the island population and shipowners and after research assessing whether the public interest can be achieved without imposing a public service obligation on shipowners or concluding a public service contract [13]. In this sense, the statutory framework prioritises market provision, while PSO/PSC instruments are applied where commercial incentives do not ensure the required level and continuity of service.

The Maritime Transport Act further prescribes the conditions for providing public transport services under a public service obligation, including the requirement that the shipowner be established within the European Economic Area [21]. Additional technical requirements for vessels and shipowners providing public transport in scheduled coastal services are laid down in the Ordinance on the conditions to be met by a ship and a shipowner [25], including parameters such as service speed, passenger capacity and vehicle capacity, as well as line-specific requirements applicable to vessels operating on state, county, inter-county and local lines.

State support for economically unprofitable state lines is governed by the State Aid Act [26]. Within its statutory competences, the Agency for Coastal Scheduled Maritime Transport applies the State Aid Act and the relevant implementing rules when administering support linked to state lines.

A key implementing instrument for the practical application of the EU cabotage framework in Croatia is the Ordinance on the conditions for performing maritime cabotage in the Republic of Croatia [24]. It sets the conditions for cabotage by foreign-flagged ships, including ships flying the flag of EU/EEA Member States, in Croatian internal waters and the territorial sea, and between Croatian ports and offshore facilities on the Croatian continental shelf. Under Article 3(1), a foreign ship must obtain a certificate from the Ministry of the Sea, Maritime Affairs and Infrastructure confirming its technical suitability for cabotage. A separate written application is required for each ship, including basic information on the shipowner and the vessel, planned ports of call and the intended period of cabotage, together with the documents and certificates specified in the Ordinance [24].

The Regulation on the conditions and evaluation of criteria for granting concessions and concluding public service contracts is also relevant for the Croatian of scheduled coastal services system [27]. It contributed to aligning national remuneration for services of general economic interest with EU acquis criteria, including state aid discipline [28]. The Regulation distinguishes between concession contracts for profitable lines (governed by the Concessions Act) and public transport contracts for economically unprofitable lines (governed by the Public Procurement Act). In particular, Articles 7 and 9 specify the technical and economic–financial elements that must be demonstrated in the tendering procedure for a state line [27].

Finally, the Croatian Maritime Code remains the central statute governing maritime navigation and related legal relations in Croatia, and therefore forms part of the legal basis relevant for scheduled coastal services. Its provisions cover, inter alia, the maritime domain and legal relations within it, navigation safety, environmental protection, core legal rules relating to vessels, contractual and other obligations concerning ships, vessel registration, limitation of liability, and enforcement and insurance on ships [23].

Taken together, the Maritime Code, the Maritime Transport Act and the associated by-laws provide a coherent national framework aligned with the EU baseline for the regulation of scheduled coastal services in Croatia.

6.2. Greece / Grčka

Greece, an EU Member State with more than 200 inhabited islands, relies heavily on scheduled coastal services to ensure regular connections between the islands and the mainland, as well as between islands [18]. Although the Greek insular space is often described through several major island groups, this paper focuses on the scheduled coastal network and the PSO/PSC mechanisms used to secure service continuity. The indentation coefficient for Greece is 3.84 [18]. Most maritime passenger transport in Greece is domestic, highlighting the systemic importance of scheduled coastal services for national connectivity [18].

According to available data, the Greek maritime passenger transport network combines commercially operated services with subsidised routes maintained under public service contracts [30]. Routes that are not commercially viable are co-financed through public tenders. The competent authority defines route and service requirements and sets a maximum level of support, while shipowners compete by offering the lowest compatible level of requested compensation [31]. Tender documentation typically specifies service conditions, including capacity and operational reliability parameters, with safety compliance as a baseline requirement [31].

The Ministry of Maritime Affairs and Insular Policy is the competent authority responsible for the organisation and supervision of scheduled coastal services, including the designation of public service routes, the launching of tenders, the conclusion of contracts and supervising implementation.

The legislative framework in Greece has undergone significant changes over the past two decades, primarily to align it with the EU cabotage baseline. A key step in the legal regulation of scheduled coastal services was the adoption of Law 2932/2001 on the freedom to provide services in the maritime transport of passengers and cargo between Greek ports (hereinafter: Law 2932/2001) [32]. The Law initiated gradual liberalisation in accordance with Regulation 3577/92, while retaining certain regulatory requirements linked to vessel characteristics and service quality. Subsequent amendments, implemented in 2011, further strengthened alignment with the EU framework, particularly regarding the award of public service contracts and the removal of remaining restrictions affecting market access conditions.

Given its geographical specificities, Greece relies heavily on PSO/PSC arrangements to ensure the accessibility of remote and less connected islands. Public service contracts are awarded through tendering procedures, while their duration and renewal arrangements may vary depending on the characteristics of the route and the tender conditions. Selection criteria typically include the level of remuneration requested, vessel characteristics and compliance requirements, and service parameters such as frequency and reliability, with price-related elements where applicable. The State subsidises shipowners to cover the net cost of providing the required service under the PSO/PSC regime, subject to transparency and proportionality considerations under EU law. Despite the tendering model, the market structure in practice is characterised by the presence of larger shipowners alongside smaller local operators, which highlights the importance of effective supervision and transparent contracting practices.

Notwithstanding progress in regulatory alignment, the Greek coastal liner shipping system continues to face structural challenges, particularly in relation to fleet renewal and port infrastructure on smaller islands. Where port infrastructure remains insufficient to accommodate modern vessels, service reliability and system efficiency may be affected, underscoring the importance of coordinated investments in port facilities and management arrangements [33]. At the same time, ongoing modernisation efforts, including investments in faster and newer vessels, reflect a focus on improving service quality and reducing pronounced seasonality, with particular relevance for smaller island groups [31,34].

Taken together, the Greek framework illustrates a model in which a central ministry operationalises cabotage liberalisation through tender-based PSO/PSC intervention, while remaining confronted with structural challenges linked to fleet renewal and port infrastructure. Greece therefore provides a relevant comparator for assessing how Member States translate the EU cabotage baseline into national PSO/PSC frameworks and supervisory practice.

6.3. Italy / Italija

Italy has a long coastline and a pronounced insular dimension, most notably through Sicily and Sardinia, as well as numerous smaller island groups. This geographical setting creates a sustained need for well-organised scheduled coastal services [18].

Cabotage in Italy supports both the daily mobility of island communities and the tourism and logistics system. or the purposes of this paper, Italy is relevant because island connectivity is organised through PSO/PSC instruments in a multi-level framework, in which state rules interact with regional competences. Regulation 3577/92 has been applied in Italy in line with its temporal scope and, as regards island cabotage, has been applicable since 1 January 1999 [16].

The general statutory baseline for maritime transport is provided by the Codice della Navigazione (1942), as amended, which sets the core legal framework for maritime operations, including cabotage, and reflects the role of public authorities in ensuring accessibility and safety [35]. Against this baseline, more specific instruments and institutional mechanisms have been developed to operationalise public service intervention and to organise scheduled coastal services. In this context, Legislative Decree No. 169/2016 is relevant as it restructured the system of port authorities and port governance [36]. In addition, Law No. 616 on navigation safety and the protection of human life at sea remains pertinent as a safety baseline. Although it does not regulate PSO/PSC design, it sets minimum safety conditions without which ships cannot be authorised to carry passengers [37].

A particularly significant element of the Italian cabotage system is the use of public service contracts to connect Sicily, Sardinia and smaller islands with the mainland. Historically, the key role in this was played by the state-owned shipping company Tirrenia di Navigazione, which for decades held a dominant position on many lines. The liberalisation process began in the 1990s, but Tirrenia remained the holder of long-term public service contracts until its privatisation and transfer to Compagnia Italiana di Navigazione (CIN) in 2012. The European Commission has examined the compliance of such contracts with State aid rules, particularly regarding the proportionality of public compensation, which has contributed to increased attention to transparency and to a clearer definition of public service obligations. Public service contracts are also awarded to regional shipowners for specific island connections, such as Laziomar for routes to the Pontine Islands.

Regional authorities play an important role in organising maritime services, including decisions on service levels and parameters of public compensation. The system is often presented as an alternative to road transport for islands and coastal areas, with the aim of improving public transport accessibility and mitigating negative externalities of transport [38]. The amount of financial support is fixed and paid quarterly, while the regional body responsible for implementing the contract collects the revenue inflows from ticket sales. Contracts are concluded for a fixed term, commonly five years [16].

Fare-setting in the Italian system reflects a division into low, medium and high seasons, linked to fare levels and service frequency. Island fares are more affordable and are applied on lines of public interest, while seasonal commercial lines operate with a single fare price [16]. The ratio of revenue generated from ticket sales to the costs of maintaining the line determines the level of support needed for economically unprofitable services.

An important regulatory and supervisory role is performed by the Transport Regulatory Authority (Autorità di Regolazione dei Trasporti) (hereinafter: ART). ART adopted Resolution 44/2024, which initiated a review of the methodology for determining reasonable profit in PSO cabotage contracts [39]. The Resolution follows on from Resolution 22/2019, which established the basic methodology for calculating the profit margin, and foresees its adaptation to situations in which the value of the regulated capital is very low or non-existent, for example in the case of an old fleet or significant public subsidies [39]. The revision is aimed at strengthening transparency, standardisation and predictability in PSO contracting, reduce the scope for arbitrary interpretations and support fair and proportional public allocations.

Despite significant reforms, the Italian coastal liner system faces several challenges. The level of public compensation in PSO contracts remains subject to scrutiny, particularly in relation to proportionality and competition. The market shows a tendency towards concentration, and the liberalisation process is often described as slower than in some other Member States.

Taken together, the Italian case illustrates how PSO/PSC instruments operate within a governance structure that combines a general maritime code with sector-specific instruments, regional responsibilities and an independent regulatory authority (ART) with a focus on methodology and oversight. These features make Italy a useful comparator for Croatia and Greece, particularly with regard to the allocation of responsibilities, the structuring of compensation parameters and the role of regulatory oversight in ensuring transparency and proportionality.

6.4. Comparative synthesis of PSO/PSC governance and design (Croatia–Greece–Italy) / Usporedna sinteza načina upravljanja i osmišljavanja u okviru PSO-a/PSC-a (Hrvatska – Grčka – Italija)

To make the comparative dimension explicit, Table 1 summarises the main institutional and legal features of scheduled coastal services and the related PSO/PSC arrangements in Croatia, Greece and Italy. The parameters cover the competent authorities, the key national legal bases, the instruments used to secure continuity of service, and the main characteristics of tendering and oversight. The table provides a structured reference for the comparative observations that follow.

Table 1 Comparative overview of PSO/PSC governance and core design parameters (Croatia, Greece, Italy)

Tablica 1. Usporedni pregled upravljanja i ključnih parametara u okviru PSO-a/PSC-a (Hrvatska, Grčka, Italija)

The information in Table 1 is drawn exclusively from the preceding sections and is presented here in comparative form to facilitate synthesis. This overview confirms that all three Member States operate under the same EU cabotage baseline, yet apply materially different PSO/PSC governance arrangements. Table 1 serves as the reference point for the concluding observations in the final section.