Freight

The Scottish Parliament’s Net Zero Emission Transport (NZET) Committee recommended reconsideration of wider policy on the provision of freight capacity on Scottish ferry routes; and the point at which profitable businesses should no longer be reliant on public subsidy of their freight costs.

Around 145 respondents answered Question 11, albeit some noted that this is a difficult issue on which to comment, or raised more general issues relating to freight, including that a suitable and efficient freight ferry service should be the aim. Associated with this were calls for Scottish Government investment in infrastructure and technology, including improving and modernising ports, ferry terminals, roads, and vessels, to enhance efficiency and reduce operational costs for freight services. There were calls for freight only services, including overnight services.

A ferry committee respondent was of the view that reduced commercial vehicle ferry fares would not need to result in increased public funding if some importance was placed on the need to reduce ferry operating costs. However, a private sector respondent questioned the value of looking in isolation at whether the costs of sea freight transport could be shared differently and suggested that a serious and strategic review of how services are provided and supported in Scotland is overdue.

The suggestion that many of the wider benefits of ferry services cannot easily be quantified or monetised was challenged, and it was suggested that there is no reason why a Cost Benefit Analysis cannot be carried out.

Impact of freight costs

There were a number of references to freight charges ultimately translating into a cost to island residents, be that in terms of increased prices when purchasing goods from island businesses or in higher delivery charges when purchasing direct from a mainland supplier. To set this problem in context, a community council respondent stated that the cost of living in islands is already up to 40% higher than on the mainland, and that any increase in the cost of freight is likely to exacerbate this.

In terms of business responses, there were references to the wider operating environment over the past couple of years, recognising the inflationary pressures and other increased costs. Business-related respondents expressed their concern that higher freight charges, along with poor reliability of ferry services, may lead suppliers to question whether it is viable to supply and deliver to island businesses and communities; the corresponding point was that no private business should be discouraged from providing essential freight services.

It was also noted that freight charges impact on the viability of island-based businesses that are exporting to the mainland or other islands; in the case of Shetland, it was suggested that this would be a particular risk to the seafood, aquaculture and livestock industries where suppliers closer to distribution networks already benefit from a commercial advantage through lower overall freight transport costs. The associated concern was that if island businesses become less competitive, there will be knock on risks to profitability and ultimately to jobs and the local economy.

In relation to particular types of business, a ferry committee respondent commented that the cost of ferry transport is seen to be a major factor for house building, service provision and supplies of raw material to manufacturers and farmers. Again, there was a concern that for those who rely on importing freight, such as the construction and engineering industries, there is a risk that any increased costs could get passed on to end customers.

In terms of particular locations, it was stated that end to end journey freight costs are already relatively high for Shetland, and a small business on the Small Isles reported that providing essential local services has got increasingly hard recently, with the overall import and export costs doubling in the last year, and some Small Isles-based businesses ceasing to trade.

For many respondents, the overriding issue is that any approach should not increase freight costs in a way that undermines local businesses and, by extension, the local economy, or results in even higher prices for island residents; it was suggested that there needs to be a recognition that freight is not a choice for islanders. Given its critical role, it was suggested that the ferry service should not be viewed as a profit-generating enterprise but as warranting a level of public subsidy that ensures the long-term viability of freight.

Framing of any subsidy approach

While there was occasional support for the status quo, most respondents were looking for some form of increased public subsidy for freight; as earlier, this was often connected with ensuring the future of island communities. In terms of how or to whom/what that subsidy should apply, there were references to:

• Bringing essential supplies to and from the islands such as food, livestock and supplies and building materials, but also having a better distinction between essential and non-essential freight.
• The scale of some businesses or operations, for example that any approach should consider the needs of crofters.

Equivalence and RET

The most frequently made point was that RET fares should apply to freight. General comments included that with regard to freight transport, islands should have the same costs as their counterparts on the mainland, and that only when government no longer funds or subsidises rail and road building and services would it be appropriate to remove public subsidy from freight on ferries.

There were also comments about equivalence between different locations and routes, including that equivalent fares and subsidies should apply. However, it was noted that such an approach would need to accommodate a broad range of circumstances; for example, it was stated that freight costs for Knoydart are unusually high due to the need to use a landing craft, and that this has been wholly funded from the private sector until the recent provision of RET funding to Highland Council for the route.

Associated points included that RET fares for freight would bring significant economic and social benefit, including because inflated freight costs are a major driver of the high cost of living on the islands and high supply costs for business, which in turn acts as a brake on business development.

However, it was also suggested that the current approach does not work for all locations and the ferry fare itself is only one part of the cost of freight deliveries. For example, it was stated that the cost of freight to Coll is punitive, despite the application of RET, and that a new system must be found that caps the amount carriers can charge, without forcing them to withdraw their services altogether, or the operator should step in and convey freight on behalf of the community.

Challenges when considering profitability

Some respondents also addressed the consultation’s reference to profitable businesses, including by suggesting that some businesses are only profitable because subsidised ferry fares enable them to compete with companies on the mainland. It was also reported that a company needs to be profitable to grow through investment, and again that jeopardising that profitability would be counterproductive.

Although some respondents did consider that public subsidy seems iniquitous when larger, profitable businesses are making considerable use of freight services, the challenges of creating a workable alternative that does not result in unintended consequences were also highlighted. It was suggested that some targeted conversations with industry may be required, not least because defining a profitable business is complex process and imposes serious risks to the businesses and communities reliant on the service. A private sector business respondent was concerned that any such system would be complex and unworkable. The issue of equitable treatment was also raised again, including that businesses on islands without the possibility of fixed links will be disadvantaged. Given these potential issues, there were calls for any changes to the current commercial arrangements to freight to be considered very carefully.

However, others did see a case for change, with comments including that:

• If a business is inherently reasonably profitable then it should not be receiving a subsidy.
• Some of the companies involved can be multimillion worldwide operations, and that the public should not be subsidising their profits.
• Businesses that make an active choice where they produce can be expected to have made a calculation before deciding for a specific location. Hence, subsidies to transport their products from islands would not be appropriate.

Finally, there was reference to freight associated with projects of national significance, such as windfarms and the wider energy sector, where the end customers are not local communities or businesses; it was suggested that consideration could be given to how the cost of transporting the associated freight could be shared differently but, again, that this would need careful research and consideration to avoid any unintended negative impacts.