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Scottish Ferries Review

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WP1: METHODS OF DELIVERY, COMPETITION AND PROCUREMENT, FREIGHT METHODOLOGY Consultation Events Seminars Workshops Public meetings Interviews Submissions Case studies ... – PowerPoint PPT presentation

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Title: Scottish Ferries Review


1
Scottish Ferries Review
  • METHODS OF DELIVERY,
  • COMPETITION AND PROCUREMENT,
  • FREIGHT
  • Work Package I

2
WP1 METHODS OF DELIVERY, COMPETITION AND
PROCUREMENT, FREIGHT
3
METHODOLOGY
  • Consultation Events
  • Seminars
  • Workshops
  • Public meetings
  • Interviews
  • Submissions
  • Case studies on UK and international services
  • Existing data sources

4
FINANCIAL INCENTIVES
  • Ferry service operations/vessels subsidy
  • Passenger freight subsidies
  • Ports/Integration subsidy/grants
  • Total approx 120m/year
  • Differences in subsidy arrangements across
    different areas
  • Tendency to introduce new subsidy schemes / added
    support over last several years.
  • EC doubts about level of compensation needed
    and typical undertaking

5
Public subsidy for Scottish ferry services, 2007-8 Public subsidy for Scottish ferry services, 2007-8 Public subsidy for Scottish ferry services, 2007-8
Subsidy (m)
CHFS CalMac 42.0
Northern Isles Northlink 32.0
Shetland Isles SIC 10.5
Orkney Isles Orkney Ferries 5.6
Highland Highland Council ?
Argyll ABC (incl concessioned routes) ?
Harbour Facility Grants Scottish Government 16.4
CMAL Scottish Government ?
Total 106.5
Notes Excludes RET, which started Autumn 08, and costs 22.5m over 3 years (7.5m/yr average) Excludes expenditure on harbours by local authorities Notes Excludes RET, which started Autumn 08, and costs 22.5m over 3 years (7.5m/yr average) Excludes expenditure on harbours by local authorities Notes Excludes RET, which started Autumn 08, and costs 22.5m over 3 years (7.5m/yr average) Excludes expenditure on harbours by local authorities
6
REGULATION
  • European Commission
  • Competition Policy, compliance with state aid
    regulations related to Article 88(2) of EC Treaty
  • European Maritime Safety Agency (EMSA)
  • UK Government
  • UK Department for Transport determine overall
    transport strategy for the UK.
  • UK Maritime Coastguard Agency (MCA)
  • Scottish Government
  • Responsibility for transport in Scotland devolved
    to the Scottish Government - Scotland Act 1998
  • Transport (Scotland) Act 2001 - funding for
    lifeline ferries
  • Councils
  • Local Government in Scotland Act 2003 gives
    Councils specific statutory powers in relation
    to ferries.
  • Others (IMO, ports, etc)

7
FERRY SERVICE DELIVERY OPTIONS
  • Data shown taken from information provided at the
    Consultation Events
  • Presentation will be updated when all information
    from the data collection exercise has been
    collected
  • Delivery Options
  • Publicly-owned operator
  • Privately-owned operator
  • Mixed Public-Private operator
  • Community-run operator
  • Role of CMAL (Vesco)
  • Possible role of Private Equity

8
Delivery Option Strengths Weaknesses Risks Opportunities
Public Operator Perceived to be more sustainable and secure. Lack of funds for new ships. Slow to change/adapt. Not customer driven crew/operation driven. Perennial problems with service quality, high costs, and lack of investment. Prescriptive route/service specifications. Limited potential to modernise or to innovate. Not regarded as customer-oriented. Inadequate services may constrain economy. EC may request disposal. Limited due to lack of funding, entrenched working practices, and absence of commercial focus.
Private Operator Easier access to capital. May give access to modern ships and superior management and systems. Driven by profit (users have to be safeguarded under the contract). Is 6-yr contract enough to make investments in ships? Perception less sustainable or secure than public operator. Private operator may use second-hand vessels. Potentially could improve services. Public sector finance burden alleviated. Would search for efficiencies and market growth. Offers flexibility to improve services. Could combine with CMAL model to give safeguards. Tenders could propose maximum age of ship to be used.
Public/Private Operator Sharing risks and rewards. May be more acceptable to stakeholders than wholly private. Still needs state investment or involvement in some form. Different objectives could lead to potential conflicts. Maximise benefits of PPP.
Methods of ferry service delivery and operation
9
Delivery Option Strengths Weaknesses Risks Opportunities
Community-run Local enthusiasm to make it work. May be more reliable. Potential lack of funding. Limited organisation or managerial capability. Regulations of vessel operating could be a constraint. May not be sustainable. Would seek to develop market. May be best suited to short small-volume routes only. CMAL could provide vessels, piers and expertise.
CMAL Economies of scale? Safeguards ships for routes over longer term. Could develop a ship trading role. Would it have enough corporate independence? Would need to develop the skills required. Operators may prefer to use/acquire their own ships. Would CMAL build optimal ships for routes? Need to build in preferences of private operators. Can it gain access to capital? Potential to develop competence. Long-term essential infrastructure provider has hidden value not exploited. Could supply ships for other ferry markets.
Private Equity Essential infrastructure (ferries) attractive to PEF. Could raise capital via full or partial sale of state companies/ CMAL. Sale proceeds would need to be ring-fenced for fleet and harbour investment. Sale proceeds used for fleet investment would further raise value of company. Political and other stakeholder acceptance not certain. PEFs generally less likely to invest in new capital assets. Private equity demand high returns. PE requires exit after 3-5 years. Requires safeguards for service users (e.g. Prices etc). Ring-fencing sale proceeds for investment in new assets would be problematic. Potential to intercept hidden value of essential infrastructure contracts. Potential to finance new fleet and harbours. Possible scope for shipbuilding in Scotland. CMAL PEF could develop export capability. Subsequent re-sale of company could raise more finance for further fleet port investment. Pension funds better?
Methods of ferry service delivery and operation
10
COMPETITION AND PROCUREMENT
  • Large bundle tender (i.e. all routes in one
    bundle)
  • Small bundle tender
  • Tender on individual route basis
  • Community tender
  • Competition on routes
  • Other approaches?

11
Strengths Weaknesses Risks Opportunities
Large Bundle Possible operational economies. Ability to cross-subsidise routes (if any routes earn surplus). Argument that relief cover is easier. May discourage private bidders. Expensive/ cumbersome, lengthy tender process. Use of existing ships may not be attractive for bidders. Intense competition for ship time/relief cover over too many routes. Economies of scale/scope may not be exploited. Private operators may be discouraged if state pays public operator bid costs. Outdated fleet unlikely to be replaced by this approach should state continues as operator (lack of public finance). Inappropriate ships on many routes. Is 6yr contract adequate for ship investment? Is ship leasing an option? Private sector less interested if TUPE prevents labour force changes. Limited. Possible CMAL ship lease option (if competitive). Private operator could raise capital on basis of lifeline contract award.
Small Bundle Scope for flexibility and innovation. E.g. Western Isles bundle proposed. More bids might be attracted more competition. Easier to manage lt6 routes in same region. Tender process may be faster. May reduce economies of scale/scope. Argument that relief cover is more difficult. Private operators may be discouraged if state pays public operator bid costs. Is 6yr contract enough for ship investment? Is ship leasing an option? Private sector less interested if TUPE prevents labour force changes. Opportunity for innovation and private sector investment. Bidders could bring own ships. Relief cover can be built into small bundle. Scope to change cost structure and improve revenue. Possible CMAL ship lease option (if competitive). Private operator can raise capital on basis of lifeline contract award.
Bundling Options
12
Strengths Weaknesses Risks Opportunities
Single Route Tender Some routes may be attractive. Relief cover can be built in to the spec for some routes. May be more rapid tender process. Possible reduced scope for economy of scale/scope. Large number of tenders would be resource intensive. Private operators may be discouraged if state pays public operator bid costs. Is 6yr contract enough for ship investment? Is ship leasing an option? Private sector less interested if TUPE prevents labour force changes. Possible scope for local investment. Possible CMAL ship lease option (if competitive). Private operator can raise capital on basis of lifeline contract award.
Community Tender May suit short, small volume routes. Possible reliability and experience concerns. Issue for refit cover/relief vessel. Financial sustainability may be limited. May create new local business. Could develop initiatives to expand market. Private operator can raise capital on basis of lifeline contract award. Main operator could sub-franchise out smaller routes.
Route Competition Maintains pressure on operators to keep prices competitive. Service quality needs to be maintained to ensure competitiveness. Private operators more likely to innovate than public sector. Possibility of bankruptcy as result of intense competition. Private carrier may be unable to compete with state/PSC carrier in long run. Bankruptcy would remove an operator. Competition probably not sustainable for private vs. state/PSC carrier (unless compet. edge exists). Ease of entry/superior port locations could drive innovation. Lower prices and better service provision may increase demand. Private operator can raise capital on basis of lifeline contract award.
Bundling Options
13
Summary Procurement of Ferry services
14
EU CASE STUDIES
Denmark Sweden Ireland NLands Greece Germany
Operator Public/ Private Public/ Private Private Private Private Private
Operating subsidy Yes Yes Yes Yes Yes No
Large bundle No No No No No
Small bundle (lt6 routes) Yes Yes Yes Yes Yes
Single route Yes Yes Yes Yes Yes Yes
PSO/PSC Yes Yes Yes Yes Yes Yes
National Gov contracts Yes Yes Yes Yes Yes Reg
Ship supplier Public/Private operator Public/Private operator Private operator Public/Private operator Private operator Private operator
Contract Duration/yrs 5-6 10 5 12 Annual 15
15
EU CASE STUDIES
  • Private operators selected via competitive tender
    is the norm
  • Private operators mostly provide/finance own
    ships
  • Most common form of subsidy is agreed annual
    operating/deficit amount
  • Tenders based on either a single route or on a
    small bundle basis (e.g. lt5 routes)
  • Most services contracted by national
    administrations, some by local authorities
  • Contracted periods typically for 5-6 years, but
    several exceptions for longer periods
  • Regulation of ferry services is responsibility of
    national governments/ministries
  • Work ongoing to consider services in Norway, and
    trunk road yellow ferries in Sweden

16
LEGAL ISSUES
  • Maritime Cabotage Regulations
  • State Aid
  • Procurement Regulations
  • Vires

17
PROCUREMENT ROUTE
  • Public Service Obligation to be defined
  • Requirement for Subsidy
  • Service Specifications
  • Method for securing PSO ? PSC?
  • Requirement to tender
  • Potential Bidders and Market Scoping

18
PROCUREMENT ISSUES
  • Bundles
  • Provision of Vessels
  • Duration of Contracts
  • Exclusivity (can it be built into PSCs?)
  • Role of CalMac/CMAL
  • Provider of Last Resort
  • PPP / NPD
  • Employee issues, Terms Conditions,
    TUPE

19
SERVICE SPECIFICATION
  • Prescriptive at the moment
  • Service frequency / reliability
  • Sailing and arrival times
  • Customer service
  • Service capacity, in particular vehicle deck
    space, and cabin capacity
  • Flexibility to carry passengers, cars,
    caravans/campers, freight, coaches etc
  • Faster service speed/reduced journey time (e.g.
    possibly via superior port locations)
  • Affordable price

20
Stakeholder views within Scotland
Responsibilities Clear responsibilities for tenders with SG Local government should have input in tender specification and selection process (depending on bundling and organisation of bids in the future)
Contract Contract needs to give flexibility to operator to improve services above set minimum standards, if he wishes to
Tender requirements Provision of ships by operator preferred, if this assures modernisation of fleet, at the same time it is recognized that for certain routes responsibility for ships rests better in the public sector Shipping companies need proven performance/track record Need to identify minimum level of service in terms of level of service (frequency, reliability capacity, trip time etc) Debundling of routes necessary to open bidding process to competition Debundling options could be defined by economic area or travel relations etc.
Bidding procedures Competitive tender, quality of service needs to be key criteria
21
Criteria Tendency that maximum level of subsidies should be given for contract period Quality of services of high importance in bidding procedures Potential for operators to come up with innovative concepts Maximum tariff needs to be fixed If ship provision from public sector not given Ship needs to allow for transportation of all current and future vehicle types (if car and passenger ferry) Set requirements for ship age, environmental standards Training and career progression, location of crews
Criteria for negotiation procedure Should be based on accountability of bidding company
Exclusivity Can this be provided for in the contract?
Length of contract 6 years (longer if operator provides ships)
Procurement procedures Procedures need organised to allow for competitive bids, e.g. timelines for ship building need to be taken into account, if operator is required to provide ships
Subsidies Maximum subsidies per route/bundle should be defined
Risks - Oil price Clear strategy for risk mitigation of oil price volatility should be developed
Stakeholder views within Scotland
22
FREIGHT
  • What are the main freight traffic flows/goods
    today?
  • What will be the main freight flows in future?
  • Strengths of existing freight services
  • Weaknesses of existing services
  • Growth prospects for freight traffic
  • How should freight services be improved?

23
FREIGHT ACTIVITY TO DATE
  • Consultations
  • Islands and Peninsula
  • Arran, Bute, Islay, Mull, Orkney, Shetland,
    Benbecular, Lewis, Argyle, Kintyre, Central Belt
  • Stakeholders (140)
  • dominant and significant industries, hauliers and
    carriers, influencers and trade bodies, mainland
    and island based operators, local authorities (as
    customers and users)
  • Sectors
  • agriculture, seafood, construction, timber,
    retail, parcels, energy
  • Objectives
  • Understand the supply chains, the flows, the
    critical factors and constraints
  • Gather statistical data where available
  • Look beyond volume at a route level and more
    toward origin - destination
  • Look at the user experience - from booking to
    capacity, service and cost

24
FREIGHT INITIAL FINDINGS
  • General issues
  • Reliability, predictability and regularity is
    desired more than increased subsidy
  • Island economies are typically based on low value
    commodities or high value niches
  • Ferry connection plays a critical role in the
    sustainability of island based economies
  • Freight users recognise the sensitivities of
    passengers and symbiotic relationship with them
  • Specific issues
  • Official statistics in some cases dont capture
    real demand
  • Abstraction from routes
  • lt5m traffic
  • Minor changes can bring big benefits
  • Timing of sailings
  • Booking and cancellations
  • Communication
  • What is the product - an efficient shuttle or
    part of the holiday experience?

25
FREIGHT LONG TERM ISSUES
  • Still to do
  • Statistical analysis
  • Some cost / revenue and disaggregated volume data
    has been made available
  • Grants and Subsidies
  • Work started
  • Forecasts
  • Some data available, but most stakeholders not
    keen to be drawn
  • Conclusions
  • including alternative routes, services vessels
  • Long term needs
  • Structural efficiency or increased subsidy?
  • Asset utilisation drives cost efficiency drives
    competitiveness.
  • Is more subsidy the answer?
  • A strategic plan
  • Real freight flow demand
  • Future development of freight equipment and
    legislation
  • Competition and best practice benchmarking
  • Appropriate vessels and services
  • Make the network an enabler of efficiency, not a
    barrier to it

26
ENVIRONMENTAL ISSUES
  • Emissions
  • Noise
  • Wake/wash, and
  • Other impacts (ballast, waste etc)
  • Option 1 minimum and desirable environmental
    performance
  • Option 2 minimum and innovative environmental
    performance
  • Option 3 continuing innovation
  • Option 4 environmental management system
  • Option 5 altering ferry operation
  • Option 6 fleet-wide emissions reduction
  • TRI to consult with Transport Scotland

27
Further work and timescale
  • Further evaluation of SFR seminars/ workshops
    data collected
  • Completion of freight meetings/workshops and
    forecast work
  • Further analysis of secondary data (reports,
    operator data etc)
  • Completion of European ferry operator case
    studies
  • Draft report to be completed mid-June

28
THANK YOU
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