£10m lost revenue at Steam Packet?

THE user agreement was supposed to protect consumers, passengers, the government and the Steam Packet.


But the launch of ferry freight competition has exposed the short-comings of a deal to which the island is tied until the year 2026.

First signed back in 1995, against a history of failed Manxline competition, service disruptions and seafarer strikes, the agreement was intended to secure sea services and provide a frequency and stability of vital lifeline routes.

Providing exclusive use of the roll-on, roll-off linkspans at Douglas harbour, the deal effectively protected the Steam Packet from competition in a market which it insists is a natural monopoly.

But in return, the Steam Packet has to guarantee minimum frequency and capacity on services, many of which they say are uneconomic.

Under its terms the Steam Packet also has to provide a minimum of 936 return sailings a year to the North West ports in the UK and 63 round-trips to Ireland. During the summer, there has to be a daily service to Liverpool. Inbound, the deal outlines a specific number of lane metres per week of freight.

It also stipulates that the overall basket of fares offered can only be increased by a maximum of Manx inflation less one half of one per cent. From next year that changes to a maximum of Manx inflation.

The agreement, revised in 2002 and 2004, commits the company to invest heavily in new vessels and to provide a fastcraft service. Fastcraft are expensive to run in terms of fuel consumption.

Steam Packet chief executive Mark Woodward says the launch of competition by Mezeron was ‘unexpected’.

The threat has come not from another roll-on, roll-off operator but from a lift-on, lift-off service where containers are craned onto the vessel.

‘It’s old technology – nobody would have guessed it was going to make a comeback,’ says Mr Woodward.

So how much freight business has the Steam Packet lost with the defection of freight firm Graylaw, which transports goods for Shoprite and Tesco, to Mezeron?

Industry insiders believe it could be as much as 30 per cent, amounting to possibly up to £10 million lost in revenue. Whatever the true figure, Mr Woodward concedes it’s ‘substantial’.

By how much is Mezeron under-cutting the Steam Packet on freight rates?

The Steam Packet charges about £1,800 per round trip to transport a box trailer from Heysham. The Manx Independent understands that Mezeron is charging £750 per single leg for an equivalent 40ft container. Tesco has eight to 10 trailers a day shipped to the island and Shoprite not far off that number.

Price, then, is clearly a factor, although both Tesco and Shoprite cite environmental considerations with the savings in road miles for the trip from the warehouse to Seaforth docks, Bootle, rather than the longer distance to Heysham.

So, given the constraints of the user agreement, what options have the Steam Packet to meet the challenge?

To win back freight business, it will have to reduce freight charges. And, to offset that, it will have to put up passenger fares where possible and cut services, perhaps to the minimum set out by the deal with the government.

If that happens, job losses look likely.

The user agreement specifies that the overall basket of fares can rise no more than inflation less 0.5 per cent, but that still allows for freight rates to fall and passenger fares to rise. The squeeze is likely to be put on special offers.

Mr Woodward says that service levels in terms of capacity and frequency are currently far in excess of those stipulated by the user agreement. Routes, then, could be cut back in frequency and capacity to that bare minimum.

Some commentators suggest the Steam Packet will dispose of the smaller fastcraft Snaefell and severely cut back the Irish sailings or even dispense with them altogeher. Winter services could be reduced and daytime sailings of the Ben-my-Chree could also be restricted to certain days of the week.

If the company breaches the user agreement, that agreement fails.

Mr Woodward says the user agreement is no longer working and needs to be revised. The company could go to Department of Infrastructure to request that the contract be amended.

As the Steam Packet boss points out, there are unlikely to be any passenger ferry operators waiting in the wings to take over loss-making services.

The Scottish Assembly Government is piloting a Road Equivalent Tariff policy on the Caledonian MacBrayne ferries linking the Western Isles of Lewis, Harris and the Uists with mainland Scotland and the inner Hebrides.

It means ferry firms cannot charge motorists more than it would cost for them to physically drive the distance between, say, Ullapool and Stornoway were there a land bridge, the shortfall being backed up by Scottish Assembly Government subsidies.

The scheme has brought a big rise in tourism to the Western Isles and, following initial introduction in 2008, it has been extended for a further trial period. However, with the squeeze on public spending here in the wake of the VAT blackhole, Tynwald is likely to be reluctant to go down this route.



Direct copy from the IOMonline website