Scottish Government Ferries Review Steering Group Meeting Paul McCartney | 14 September 2009

Scottish Government Ferries Review

Steering Group MeetingPaul McCartney | 14 September 2009

Paul McCartney | 15 September 2009

Work Package

Costs and Affordability

Funding

Fares

Services and Routes


Our Approach

Based on STAG Appraisal Process Objective-led

Problems and Issues Opportunities and Constraints Option Generation Option Assessment Generation of Key Questions that will form a

basis for the Strategy


Cost and Affordability – Findings


Requirements of the Brief

Cost and Affordability Investigate means of improving the

affordability of ferry services Consider the cost and affordability of ferry

services in the context of public transport generally

Consider how to make more efficient use of ferries resources


Ferry Costs (1)

Subsidy (£m)

CHFS CalMac 42.0

Northern Isles Northlink 32.0

Shetland Isles SIC 10.5

Orkney Isles Orkney Ferries 5.6

Gourock-Dunoon Cowal Ferries 2.3

Gourock & Renfrew SPT 0.7

Aberdeen- N. Isles Streamline 0.6

Highland Highland Council (est)0.3

Argyll A&BC (incl concessioned

routes)

(est)0.3

Sounds’ Barra/Harris Comhairle nan Eilean Siar# 0.02

Total Operating Subsidy 94.32

Harbour Facility Grants* Scottish Government 16.4

CMAL ?

Total 110.72

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

#User subsidy for freight traffic Source – WP1a Report


Ferry Costs (2)

Operators Grant (£k) Annual Pax Annual Subisy per

pax

Annual Sub per capita (Scotland)

A&B £750 (est) 138,600 £5.41 £0.15

Cowal Ferries

£2,300 550,849 £4.18 £0.45

CHFS £42,000 4,533,215 £9.26 £8.16

NorthLink £32,000 307,000 £104.23 £6.22

Orkney £5,640 316,400 £17.83 £1.10

Shetland £10,500 795,600 £13.19 £2.04

Total £93,190 6,641,664 £154.11 £18.11


Key Findings

Costs on the CHFS and NorthLink networks appear to be higher than industry standards

High costs mainly driven by the ‘Major’ and ‘Intermediate Ferries’ (retail operations, high number of staff/crew, longer distances and more fuel)

Costs in Orkney are also high (and rising relatively quickly) but are lower (and more stable) in A&B and Shetland

Rising fuel costs are a threat across the board Complex tenders with little incentive deters outside

interest Need for costly replacement of vessels and shoreside

infrastructure


Network Cost Breakdown - CFL

- Relatively high crew costs

- Fuel also accounts for a significant proportion of costs

- Vessel lease fees significantly lower proportion than NorthLink – are CFL paying a market rate?


Network Cost Breakdown - NorthLink

- Graph does not include fuel

- Lease costs very significant proportion of total costs

- Hotel staff costs relatively large proportion of total crew costs


Network Cost Breakdown – Orkney (1)

-Wages, Fuel and Maintenance account for around 90% of Orkney costs

- 20% maintenance costs reflect aging fleet

- Lease costs low because OIC own the vessels and do not charge for their use


Network Cost Breakdown – Orkney (2)

-Orkney costs and trading subsidy have risen substantially in recent years

- driven by a number of factors including fuel and wages


Network Cost Breakdown – Shetland

- Costs in Shetland are stable, with any recent rise being driven principally by fuel costs

- Reflects low cost of standardised network


Crew Costs

Crew on CHFS and NorthLink vessels serve two weeks on / two weeks off

as crew are vessel based, cannot easily tailor crew numbers to demand

working hours legislation limits vessel operating hours – restricts timetable

Above average T&C’s / pension / overtime / redundancy etc

Net loss on retail activity


The Impact of TUPE

TUPE ensures the protection of all staff in the event of a ‘transfer of undertakings’ – in the context of ferries, a change of operator via a tender

valuable policy for protecting staff from unfair discrimination

ensures retention of skilled staff

But… preserves high cost base fixes costs within the system limits scope for innovation


Fuel

Fuel prices have risen rapidly in recent years and will continue to do so:

fuel is the 2nd largest element of CFL’s costs (around 30%)

also a significant element of NorthLink and Orkney costs

Shetland – fuel costs risen by 181% between 2003-2008

Conversion of large vessels to IFO will help reduce costs in the short-term, but only delays the problem

IFO has relatively greater negative environmental impacts


Vessel Specification

Vessels are specified for high passenger carryings – historical issue but mismatch of car / passenger capacity

Drives up crew requirements and costs Route

Ardrossan

- Brodick

Kennacraig

- I slay

Oban -

Craignure

Largs -

Cumbrae

Wemyss

Bay -

Rothesay

Oban

– Coll

/ Tiree

Passengers

Peak

Month

August August August May August August

Average

Passeng

er

Utilisati

on

28.6% 24.3% 24.7% 18.8% 18.9% 25.2%

Vehicles

Peak

Month May August August August August August

Average

Vehicle

Utilisati

on

66.8% 80.3% 74.9% 46.7% 37.4% 36.6%


Rationalisation? – Ports and Routes

Costs could be reduced by rationalising the number of ports and routes served

Approach could be to concentrate on hubs like Oban or Fairlie – improving facilities; or

Could focus on shortest sea crossings Slow vessels down

Could be unpopular, although highlighting the benefits may minimise the impact


Capital Costs

Need for significant investment in vessels, ports and harbours

average age of vessels is rising, with a number of ships approaching 30 years old

Ports and harbours also require significant investment – much of the shoreside infrastructure is already past its nominal ‘expiry date’

Need to modify ports and harbours if system is to be ‘opened up’?

Insufficient public funds available to meet these needs at present

Potential to reduce costs through more careful design process and multiple orders


Tender Specification

Complex tenders with little incentive deters outside interest

Current tender is restrictive and offers little scope for innovation

CFL / NorthLink bid costs met by SG (illegal State Aid?)

CFL / NorthLink will always win as their bid only requires a break-even return

Lack of incentive to innovate – virtually all additional revenue ‘clawed back’ by SG


Funding – Findings



Funding Define options for the future funding of

ferry services Define the criteria under which the

Scottish Government, LAs and other public bodies may fund particular services

Assess the impact of different funding strategies on aims of the Review and the cost to SG

Identification of additional funding streams available for ferries


Public Sector Funding Constraints

Current ferries budget insufficient to meet investment needs and rising ops costs

This is set against severe funding constraints in the public sector at present

UK Govt and SG have made it clear that spending cuts can be expected

LAs and RTPs budgets are likely to be cut

Ferries funding is not ring-fenced – may potentially be reallocated to other more high profile spending areas – health / education


Funding Structure

Considerable inconsistency in ‘who funds what’

SG, LAs, RTPs, private sector, local communities, charities and voluntary sector all involved in funding

Lack of Scotland-wide strategic focus


Borrowing Powers

SG, and thus CMAL, does not currently have borrowing powers

LAs and RTPs can borrow from a number of sources (eg Public Works Loans Board & Euro Investment Bank)

But borrowing constrained by what they can pay back / revenue streams

Current administration does not favour PFI and ferries a low priority for SFT


Future Funding Opportunities

Reform current set up Scottish Futures Trust Reclassification of CMAL Privatisation of assets CMAL – piers and harbours only Private sector bring vessels

Each option has risks and benefits, but public sector may ultimately have to pay in some way for assets and operations


Fares – Findings



Fares Exploration of options for rationalising

fares structures Identify how changes to fare structures

can support remote and island communities


Key Findings

The current fare system is complex and based on historical evolution

Some islands are at a disadvantage when compared against similar communities

Fares bear little relation to costs or revenue maximisation

Fares are generally perceived to be too high on the islands

Initial analysis suggests a 10% reduction in fares appears the ‘optimal’ solution

Grows revenue Grows patronage

RET offers the greatest rise in patronage but largest loss of revenue


Contribution to Objectives

Working Objectives Test 1:

Reduce

Resident

Fares

Test 2:

Increase

Visitor Fares

Test 3:

Reduce

Visitor Fares

Test 4:

Increase

Visitor Car

Fares

Test 5:

Increase All

Fares

Test 6:

Decrease All

Fares

Test 7: RET

Contribute to increasing the productivity, competitiveness

and consequently, the wealth of businesses and people on

our island and remote rural communities

o

Contribute to a reduction in regional disparity and more

balanced growth across Scotland

o

Contribute to improved access to employment, education,

business, leisure and health

o o o

Contribute to improved access to tourism o

Contribute to sustainable population growth in our islands

and remote rural communities

o

Contribute to the Government’s climate change policy to

reduce greenhouse gas emissions by 50% by 2030 and 80%

by 2050

o o o

Make the minimum possible impact on the local and global

environment

Support improved safety of journeys and enhance the

personal safety of those using the services, including staff

o o o o o o o

Support the use of sustainable, modern, efficient ferry

services responsive to local needs and appropriate to the

requirements of those using them

o o o o o o o

Be cost effective, providing value for money for public

investment


Key Strategic Questions

Should fares be set to: provide optimal vessel loadings

encourage travel within any given existing or future capacity

maximise revenue / minimise subsidy? Different fare policies meet different strategic

objectives Priorities? a common, standardised fare system? a fare system that may result in ‘winners and

losers’? focus fare initiatives on a specific user groups – eg

residents, tourists, freight etc? How much flexibility within Tender Specification?


Services and Routes

Paul McCartney| 15 September 2009

Principal Challenges – evidence from the Household Surveys

Comparative Satisfaction with ...

Large Communities Small Communities Peninsula Communities Others

...Number of days the ferry runs

...Reliability of sailings

...Timings of first outward journey

...Timings of last return journey

...Winter Timetable

...The level of fares

...The length of sailing time

...Frequency of sailings

…Punctuality of arrival/departure

…Accessibility

…Quality/Comfort onboard

...Integration with other transport modes

Satisfied

Less Satisfied


Key Statistics –further evidence from the Household Surveys

Community level data

Why do people travel?

What modes do they use?

What is most important to them?

What causes them greatest dissatisfaction?

Reasons for TravellingCommuting to

w ork / education

5.0%

Employer’s business

4.6%

Other1.7%

Shopping27.8%

Health related8.3%

Visiting friends / relatives /

other leisure42.9%

Short-break / Holiday9.8%

Modes Used

Public transport

0.0%

Car0.0%

Other0.0%

Air0.8%

Ferry99.2%

Modes Used to/from Ferry Terminals

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Journey start Once disembarked

Other

Walk all the way

Bicycle

Taxi

Train

Bus / Coach

Car / Motorbike (parked atterminal)

Car (dropped off/picked up)

Vehicle (taken onto ferry)

Importance, Satisfaction and Likelihood of Change relating to 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

...Number of days the ferry runs

...Reliability

...Timings of first outward journey

...Timings of last return journey

...Winter Timetable

...The level of fares

...The length of sailing time

...Frequency of sailings

...Integration with other transport modes

Importance Satisfaction Would Change if Improved


Where do people travel?Evidence from household survey


Baseline –what is currently being provided?

What sort of service does a community currently have?

From this identify positive and negative experiences – timetables, vessels, socio-economic needs

Relate this to the levels of satisfaction in the Household Survey


Index of Need –which communities are most reliant on ferries?

Analysis of community accessibility to services

Employment

Education

Retail

Some communities are more reliant in ferry links than others

Index of Need


What is happening now?Other statistical evidence

Growth 1999-2007

Gourock-Dunoon (WF)

Ardrossan-Brodick

Largs-Cumbrae

Wemyss Bay-Rothesay

Gourock-Dunoon (CM)

-10% -5% 0% 5% 10% 15% 20% 25% 30%

Subsidy per Passenger (2007)

£12.42

£81.82

£464.55

£0.00

£100.00

£200.00

£300.00

£400.00

£500.00

Ferries Air Discount Scheme PSO to Air Services

Identify existing trends – where is growth taking place?

Analyse commercial data (retail sales, cost base, types of traffic carried)

Compare support for alternative modes

Distribution of subsidy – is it proportionate to population? Need? Opportunities?

How do fares compare between routes?


Peaks and Troughs in Demand

Seasonal Distribution of Demand (Aberdeen - Lerwick, 2007)

0

2000

4000

6000

8000

10000

12000

14000

16000

J anuary February March April May J une J uly August September October November December

Passengers Cars

Average P assengers Carried

Average P assengers Carried (outwith Summer)

Demand is never evenly distributed across sailings

Varies by time of day, by day of week, by month of year

Catering for the peaks can be very costly

For example: Aberdeen-Lerwick peak passengers (July) double the average, and almost four times the lowest (February)


Rebalancing Demand and Supply?

Community level analysis

Base passenger demand = current patronage X need

Tourism

Commercial Vehicles

Supply = total capacity

Regressed and used to predict optimum capacity


Consultation –summary of issues from public meetings around the country

Example – issues raised and potential solutions suggestedTimetables

I nability to commute from islands to employment hubs on the mainland on a daily basis

Seasonal variations in the timetables mean that employment on the mainland is not

sustainable all year round

I t is not possible to make a day trip, and in some cases weekend trips, from the islands to the

mainland

Timetables also considered to be complicated and confusing, with too many variations in

sailings

Timetables should be revised and designed to best meet the needs of the island community rather

than the mainland / tourists. This would include:

providing the ability to commute where the crossings are short enough to allow this;

ensuring there is the provision for day and / or weekend trips (dependent upon distance) for

islanders to access the main towns on the mainland;

ensure the first and last sailings are at better times, most likely earlier starts and later

finishing;

better frequency, perhaps introduce a minimum standard – ie on crossing per day, or a

minimum of four crossings per week, etc;

more standardisation of the timetables, so that sailing times are the same each day – this

would also help interchange potential and connectivity with the public transport network;

flexible times / on-demand on the very short sailings;

introduce overnight sailings for both freight and passengers on longer crossings; and

faster crossing times – probably only attainable with new vessels.

Fares and Booking

No standard fare structure across routes – appears inequitable

Viewed as too expensive for both locals and freight. I f freight becomes too expensive, the

islands can essentially be cut off

Requirement for a simplified, standardised and transparent fare structure which reflects current

needs. I t is not clear however, if a further roll out of the RET structure would be sufficient, or if

some other variation is necessary. The RET has issues with removing concessionary fares and

increasing the cost for freight, thereby having negative affects on the businesses and economy on

the islands. Further discussion is provided in the separate report on fares.

No discount for ‘lifeline needs’ Some think all users should benefit from lower fares, however, others feel that only the local

residents should be eligible for lower fares. The Air Discount Scheme was suggested as a model for

subsidised residents’ fares.

I nconsistencies in booking arrangements across the network An improved and standardised booking system is needed for both freight and passengers. This could

potentially be one central / national system

Vessels

Reliability – particularly in poor weather

Age and condition of the fleet

Audit of current fleet

Maximise use of these assets, both the vessels currently in service, or future vessels which will be

purchased and put into operation

Ensure that new vessel orders will be sufficient to perform in prevailing route conditions

I nconsistencies in onboard facilities Thorough audit of what facilities are required for different types and lengths of service. No sense in

loading a 15 minute crossing with facilities, however a three hour crossing requires more. Should be

standardised across the network.

Disability Access Vessels should incorporate disabled facilities onboard and should be designed with accessibility in

mind

Vessels working more than one route Vessels should be dedicated to their route. The vessels also need to be suitable to the crossing

conditions and reliable, with sufficient relief vessels available. Vessel capacity should also be

designed to match demand on their dedicated route.


Community Fact Sheets –bringing the whole picture together


Principles to be Adopted

Location of overnight port

Crews live onshore

Later sailings

Timetable reflects demand/need

Reinforce growing routes

Standardise timetables

Consider freight requirements in vessel specifications

Review and rationalise onboard retail facilities

Reduce fares

Improve/ co-ordinate information

Improved check-in/ booking process

Step change in integration

Tackle accessibility challenges


Some of the Implications

Change in fleet structure – move to smaller vessels Reduction in ports/harbours required Tailoring supply/demand

Seasons Days

Country-wide fleet management Ferry Replacement Fund Co-ordinated dry dock programme

Tackle restrictive practices

Target – sufficient savings to establish a Ferry Replacement Fund and support other improvement aspirations

Documents

Scottish Government Ferries Review Steering Group Meeting Paul McCartney | 14 September 2009