Impact of the Removal of RET Fares from Commercial Vehicles on The Western Isles, Coll and Tiree
5 Ferry Fares and the Business Community
5.1.1 This chapter summarises the findings from the interviews and surveys of island businesses and their views on how the removal of RET for commercial vehicles is likely to impact on their ongoing performance. It also provides a record of the discussion with the 'control group'.
5.1.2 RET for CVs was introduced specifically to support general economic activity in the islands by helping businesses and consumers. The policy recognised that both the cost of living and doing business in the islands was above the national average (even compared to other Scottish islands) and thus impacting on the long-term sustainability of these communities. It was anticipated that the RET-related savings would be passed on to businesses via lower costs and then feed through to consumers through lower prices. The extent to which RET contributed to lower business costs was a key line of questioning during the business interviews. There were also detailed discussions about the impact of the removal of RET for businesses in different sectors or geographic areas.
5.1.3 The evidence in this chapter is based on 37 interviews with business across all of the islands in the study area as well as 49 responses to the online business survey. It covers a number of key themes raised in the interviews and the responses received in the online survey, including:
- business confidence in fares policy;
- the impact of the introduction of RET;
- RET and the haulage sector;
- the impact of the removal of the CV element of RET;
- competition in the haulage market; and
- the impact of RET on competition.
5.2 Business Confidence in Fares Policy
5.2.1 A frequent issue raised during the interviews was the importance of ferry services for the ongoing success of the island economies and the role that certainty of fares played in business planning and investment. There was a common view across all islands and business sectors that, while the RET pilot had positive short-term impacts in terms of stabilising transport charges, it had also generated a degree of uncertainty for many businesses. It was explained that RET was established as a three‑year pilot. As this was only a pilot, and therefore a lack of clarity around what would happen at the end of it (ie would it be removed or not?), few long-term investment decisions were made on the back of it. Consultees noted that a decision about the future of RET was not made at the end of the pilot but instead it was extended for a year. It was then announced that RET would remain but at the same time the commercial vehicle aspect of it was removed.
5.2.2 Businesses noted that ferry fares, and transport costs more generally, are often key to day‑to-day operations. Indeed, the business survey found that transport costs accounted for between 10% and 25%+ of total business costs for over 50% of those surveyed. In addition, 47% of businesses noted that more than 25% of these transport costs are accounted for by the ferry fare. It was claimed that the lack of certainty and unanticipated changes in fares were damaging business confidence at a time when activity on the islands is already depressed due to the general economic downturn.
- Key point:
− Businesses in the Western Isles, Coll and Tiree were almost universally concerned that the lack of certainty and frequent policy changes were having a detrimental impact on business confidence and long-term investment planning. Businesses stressed the need for a clearly defined longer term fares strategy that will be consistently adhered to by the Scottish Government.
5.3.1 Business views on the benefits of the introduction of the overall RET pilot varied. For example, while further work would be required to determine this was a general and representative view, a number of businesses interviewed on Coll and Tiree felt that RET had benefited tourists more than islanders. The RET passenger fare is only around £5 cheaper than the old six-journey multi‑book tickets available prior to RET, which were generally bought by locals. While there is a benefit in not having to pay the cost of six journeys up‑front, the benefits have been otherwise limited. It was recognised that lower vehicle fares make the islands more accessible for tourists. However, while this has increased the number of visitors to the islands, it was claimed that many tourists take up important capacity on the ferry and, in many cases, tend to bring food with them therefore spending little locally. In contrast, most of the businesses interviewed in the Western Isles were highly positive about the benefits of RET, noting that it has increased tourism and helped to stimulate the economy at a time of economic hardship.
5.3.2 However, almost all businesses interviewed across the different islands felt that the one area where RET has been seen to be of particular value across all of the islands is for commercial vehicles, and there is concern that it is fares for this group which are being removed. Interviewees and those involved in the survey expressed surprise that the Scottish Government is prioritising personal and tourist travel over businesses, which are the main drivers of economic activity.
- Key point:
− RET for CVs was greatly valued across all of the islands in the pilot and there was surprise amongst many businesses that this was the fare type that was being removed.
5.4 RET and the Haulage Industry Transport Charges
5.4.1 Similar to the findings from the haulier interviews, there was a general view from most businesses interviewed across all of the islands that the hauliers had used the savings from RET to compensate for a number of other costs that were rising at that time, including fuel, insurance and the cost of an operating licence and had not passed on the savings in the form of lower transport charges[9]. A number of those interviewed explained that transport charges of hauliers have been generally stable in recent years and believe this is in part a result of RET helping to maintain price levels. There appears to be minimal support from businesses for the view that hauliers used RET to subsidise their bottom line.
5.4.2 There was a wider view that haulage costs perhaps lacked some degree of transparency, resulting in some people believing that lower fares were not passed on when RET was introduced. However, similar to the views expressed by hauliers, a number of stakeholders noted that, in hindsight, hauliers should have put their rates up to reflect cost increases and then reduced these following the introduction of lower fares as part of the RET pilot.
- Key point:
− There was a majority view amongst businesses that hauliers used RET to stabilise transport charges rather than to pass on the RET saving in full in the form of lower transport charges
5.5 Impact of Removal of RET for Commercial Vehicles
5.5.1 A number of people interviewed explained that the removal of RET for CVs had the largest impacts on businesses that have one or more of the following characteristics:
- Moving / purchasing low volumes - these organisations have very little buying power and thus have to take the price set by the hauliers and other suppliers.
− Examples include independent retail stores and furniture and white goods. - Moving a low value / low margin good - companies moving goods with either small margins and / or volatile prices experience the biggest impacts.
− Examples include building materials, packaging etc. - The company is a 'price taker' - firms which do not have the ability to influence the market price of their goods (ie they take the price set by the market) and are exposed to any cost increase.
− Examples include agricultural products, seafood, fuel etc.
5.5.2 The sectors which exhibit such characteristics include small scale / independent retail; agriculture; aquaculture and fishing; construction; and low value manufacturing. There are no reliable data on the structure of the Coll and Tiree economies, however the IDBR (Interdepartmental Business Register) does provide a useful data source for the sectoral breakdown in term of employment and number of registered businesses for the Western Isles. The data are set out in Tables 5.1 and 5.2 below.
Table 5.1 Registered Businesses by Sector as a Percentage of Total (Western Isles and Scotland, March 2012)
| Sector | Western Isles (% of Total) | Scotland (% of Total) |
|---|---|---|
| Agriculture, Forestry and Fishing | 23.0 | 10.9 |
| Mining and Quarrying | 0.4 | 0.2 |
| Manufacturing | 5.2 | 5.3 |
| Electricity, Gas, Steam and Air Conditioning Supply | 0.4 | 0.1 |
| Water Supply; Waste Management and Remediation Activities | 0.4 | 0.3 |
| Construction | 10.8 | 11.6 |
| Wholesale and retail trade; Repair of motor vehicles and motorcycles | 16.0 | 15.9 |
| Transportation and storage | 4.8 | 3.2 |
| Accommodation and food service activities | 8.7 | 8.2 |
| Information and communication | 3.0 | 4.9 |
| Financial and insurance activities | 0.9 | 1.2 |
| Real estate activities | 1.3 | 3.0 |
| Professional, scientific and technical activities | 8.7 | 16.2 |
| Administrative and support service activities | 4.8 | 6.3 |
| Education | 1.7 | 1.1 |
| Human health and social work activities | 4.8 | 3.9 |
| Arts, entertainment and recreation | 1.7 | 2.5 |
| Other service activities | 3.9 | 5.5 |
5.5.3 Table 5.1 shows a relatively high number of enterprises in agriculture, forestry and fishing industries, amounting to 23%. This is higher than any other sector in the islands and compares with a Scottish average of just under 11%.
| Sector | Western Isles (% of Total) | Scotland (% of Total) |
|---|---|---|
| Primary Industries | 11.9 | 6.2 |
| Manufacturing | 6.6 | 10.0 |
| Construction | 12.7 | 6.9 |
| Wholesale, retail and repairs | 21.8 | 20.0 |
| Transport and storage | 6.8 | 4.8 |
| Accommodation and food services | 11.9 | 9.0 |
| Information and communication | * | 3.2 |
| Financial and insurance services | 2.6 | 5.0 |
| Real estate activities | 2.0 | 1.5 |
| Professional, scientific and technical | 5.1 | 7.3 |
| Administrative and support services | 3.2 | 8.9 |
| Education, human health and social | 9.0 | 11.9 |
| Arts, entertainment and recreation | * | 2.9 |
| Other service activities | 2.2 | 2.4 |
* Not available due to confidentiality reasons
5.5.4 While Table 5.1 focuses on registered business, Table 5.2 reveals employment by sector, as a proportion of the Western Isles total. The table also shows the equivalent figures for Scotland. Similarly to the figures on the number of businesses, the table shows that the Western Isles has a high dependency on the primary industries, with a much higher proportion of people employed in the primary industries (11.9%), including agriculture and fishing, compared to Scotland as a whole (6.2%). The table also shows that there is a higher percentage of employment in the construction sector compared to Scotland as a whole. Indeed, the figure of 12.7% is almost double the figure of 6.9% for Scotland.
| Sector | Total Turnover (£m) |
|---|---|
| Primary Industries | 156 |
| Manufacturing | 48 |
| Construction | 60 |
| Wholesale, Retail and Repairs | 234 |
| Transport and Storage | 33 |
| Accommodation and Food Service | 26 |
| Information and Communication | * |
| Financial and Insurance Services | NA |
| Real Estate Activities | 10 |
| Professional, Scientific and Personal | 32 |
| Administrative and Support Services | 15 |
| Education, Human Health and Social | 19 |
| Arts, Education and Recreation | * |
| Other Service Activities | 7 |
| Total | 710 |
5.5.5 The figures in Table 5.3 on turnover also provide a good indication of the importance of the primary industries, making up 22% of the total turnover of enterprises in the area. Indeed, the sector employs the same number of people in accommodation and food services, yet the primary sector has six times the turnover.
5.5.6 While figures for 2011 will be released over the coming year, the 2001 Census provided more disaggregated data which noted that employment concentration in agriculture and fishing ranged from 5% in Lewis to 17% in Harris and Scalpay.[10] The employment concentration in these sectors in Coll was as high as 22%. The equivalent figure in Tiree was 17%, but that island also has a heavy concentration of ancillary jobs linked to this sector, such as in the food and drink industry.[11]
5.5.7 While the tables and figures above illustrate the high concentration of firms and employment in the agriculture, forestry and fishing sector, it also important to recognise that the size of the individual businesses in these sectors is relatively small. Indeed, this is a common characteristic across many of the sectors in the Western Isles. Table 5.4 below reveals the number of employees by registered businesses in the Western Isles.
| Number of Employees | Number of firms |
|---|---|
| 0 - 4 Employees | 965 |
| 5 - 9 Employees | 160 |
| 10 - 14 Employees | 65 |
| 15 - 49 Employees | 65 |
| 50+ Employees | 10 |
| Total | 1,270[12] |
5.5.8 Table 5.4 shows that of the 1,270 registered businesses in the Western Isles in March 2012, 76% of these had less than five employees. This compares with a figure of 70% for Scotland as a whole. The small size of businesses, in terms of the number of employees, is particularly evident in the primary sector. Table 5.5 below shows that of the 300 registered businesses in the primary sector, 90% of these had less than five employees. Indeed no business had more than 14 employees. The small size of firm adds to the vulnerability of this particular sector ie while they are not only operating in a sector that is characterised by high levels of competition and are generally price takers in the market, their small size also means they have limited market power in terms of being able to pass on costs to their customers.
| Number of Employees | Number of firms |
|---|---|
| 0 - 4 Employees | 270 |
| 5 - 9 Employees | 15 |
| 10 - 14 Employees | 10 |
| 15 - 49 Employees | 0 |
| 50+ Employees | 0 |
| Total | 300 |
5.5.9 Given the relatively high concentration of employment in the RET pilot area in businesses that display at least one of the characteristics set out in 5.5.1, it was claimed that the removal of RET for CVs and the consequent increase in business transport costs is likely to have a negative impact on the local economy. In addition, it was also claimed that, in many areas, these businesses are the key drivers of small communities which are very vulnerable and sensitive to small changes in business performance.
- Key point:
− The removal of RET for commercial vehicles is seen to be hitting the most marginal businesses in the community the hardest. There was a general concern that this will impact on the long-term viability of many parts of the islands, particularly the most vulnerable sectors.
5.6 Competition in the Haulage Market
5.6.1 While it is difficult to unpick the RET specific element of any increase in costs, this position has been made even more difficult in the Western Isles following recent changes in the haulage market. The demise of MacAskill Haulage, which was one of the 'big two' full service hauliers has distorted the overall operation of the haulage market in the Western Isles.
5.6.2 It was explained that the withdrawal of MacAskill has created fierce competition amongst the hauliers, mainly in Lewis and Harris, and the potential beginning of a 'price war'. It has also opened up opportunities for new entrants to the market in these areas, creating an increase in choice for users of haulage services. MacRitchie Highland Haulage in particular has made a concerted effort to enter the Western Isles market. The effect of this increase in competition has been to limit the impact of the removal of RET-related price rises on local businesses. Many firms noted that this is a 'honeymoon period' and expect rates to go up once the market settles down again.
5.6.3 The level of competition in the southern islands and Coll and Tiree is much more limited compared to Harris and Lewis. This is due to the generally smaller size and scale of industry and therefore the lack of viable opportunities for hauliers. These areas tend to be dominated by one or two hauliers.
5.6.4 The introduction of RET coincided with the removal of the volume-based discounts, such as TRS, which the larger hauliers benefitted from due to the greater volumes they were transporting. Together, it was claimed, these two policies had created a more level playing field. While the larger companies still had the benefits of scale to some extent, their overall advantage was reduced. The creation of a level playing field was seen as universally positive by island businesses because it had created more competition in the market.
- Key points:
− The full effects of the removal of RET are not yet being felt in Lewis and Harris because of the current disruption in the market caused by the demise of MacAskill Haulage. There have even been instances of rates being reduced as hauliers jockey for position. However, there is a longer-term expectation that rates will increase once the market has settled.
− The increased competition amongst hauliers driven by the level playing field created by RET is seen as universally positive amongst island business, promoting choice and competition.
5.7 Impact of RET on Competition
5.7.1 Businesses explained that the introduction of RET for commercial vehicles in 2008 had a noticeable impact on competition within the wider economy, particularly between small retailers and the large supermarkets. Given the scale of companies like the Co-operative and Tesco, they tend to adopt regional or indeed national pricing systems. Inherent within this is the absorption of all costs for each business unit within the wider company / regional grouping overheads. That is, large firms like the Co-op do not tend to consider shops as individual business units and thus their prices do not reflect the 'real' cost of doing business in a certain location ie their overheads for the whole network are split across all business units and therefore a change in ferry fares (either up or down) will be spread across a large number of units. This is in contrast to the small independent local stores who must either absorb or pass on the additional costs of doing business in an island community.
5.7.2 It was claimed on a number of occasions that RET for commercial vehicles helped keep costs down for independent stores. By reducing (or at least maintaining) the cost of a pallet with any given haulier, RET reduced (or maintained) the unit cost of individual goods sold in the shops. This was true of grocery stores to some extent but it was felt the biggest impact was on shops that sell low margin bulk goods like carpets, furniture and white goods. Stakeholders saw this as a beneficial impact in terms of both choice within the market and town centre / rural community vitality.
5.7.3 In contrast, it was explained that the initial and continued provision of RET for cars has incentivised many people to shop on the mainland. While the length of the crossing, the cost of the trip and the cost of fuel means that people are unlikely to go to the mainland to only shop, they will tie in shopping trips with visits to, for example, their family, holidays, hospital visits etc. While this is obviously rational behaviour by islanders, it is having a detrimental impact on island businesses, particularly for big ticket items like furniture or high value products like electronics where independent island stores do not have the scale to compete with national retailers.
5.7.4 Similar to most Scottish retailers, it was explained that local businesses are facing stiff competition from internet shopping. While certain mainland firms will no longer deliver to the islands (because their couriers will not go to the islands), it was suggested that the standard delivery charges offered by firms that do deliver from the mainland (eg Next, John Lewis) are very low - eg Next is £2.50 for a delivery and John Lewis deliver free of charge. Like the Co-op, these companies absorb the costs of delivery to the islands across a much larger sales base. While this is beneficial for the consumer, it was suggested it is having a serious impact on the viability of a number of small scale island businesses, particularly those that trade in 'big ticket' items.
- Key points:
− Local competition brought about by RET is seen as positive for the local consumer but the increased competition between the island retailers and large mainland businesses is seen as less positive for the islands as a whole and their sustainability. Overall, however, RET for CVs was seen as an important policy in allowing small and independent island businesses to compete with large chain firms like the Co-Op and Tesco.
5.8 Survey Findings - On-line Business Survey
5.8.1 In order to validate the findings of the interview process, an online survey of businesses was also undertaken to canvass views of those that were not selected to take part in an interview. The aim of this survey was to assist in developing a wider evidence base to critically assess and support the findings of the business interviews. A key point is that the survey was focused more on collecting factual data than on more general opinions on the removal of RET for CVs. This section therefore summarises the findings from the survey[13].
Area of Operation
5.8.2 Respondents were asked on which island(s) their business operates and were permitted to tick all islands that applied. Figure 5.1 below shows the areas of activity of the businesses interviewed. It can be seen from the Figure that the responses are a reasonable reflection of the share of total population and level of business activity on the islands ie the majority of businesses are on the most populated islands of Lewis and Harris, with lower numbers of businesses on the southern islands and Coll and Tiree.
Figure 5.1 Area of Business Operation
5.8.3 Almost 65% of businesses surveyed operated in Lewis, which is perhaps unsurprising given the role of Stornoway as the economic hub of the Western Isles. Thirty nine per cent of businesses operated in Harris (many of which will also be included in the Lewis figures), while the figures across the Uists, Benbecula and Barra ranged from 28% to 41%. Only a small number of businesses surveyed operated in Coll and Tiree.
Sectoral Split
5.8.4 Figure 5.2 shows the sectoral split of businesses surveyed - note that respondents were asked to tick all of the sectors which applied, meaning the percentages in the figure do not necessarily sum to 100% due to a number of businesses operating across sectors.
5.8.5 The sectoral split identified by respondents is broadly in keeping with the industrial structure of the study area overall. The two largest individual sectors were "Retail" and "Tourism Hotels and Restaurants", which, while being affected by the removal of RET for CV fares, will likely be major beneficiaries of the reduction in car and passenger fares under the RET pilot. These were followed by manufacturing, construction, agriculture and fishing / aquaculture. Overall, those sectors which will be impacted by the removal of RET for CVs, and will therefore be well placed to comment on the effects, are well represented in the survey.
Number of Employees
5.8.6 The majority of the businesses within the sample were relatively small in scale. Forty six per cent of businesses employed between one and three full-time staff, with only three firms in the sample employing more than 20 staff. On many occasions, these firms were supplemented by a small number of part-time and seasonal staff. Overall however, the sample reflects the small scale of businesses typical of the communities in the RET pilot area.
Average Annual Turnover
5.8.7 Figure 5.3 illustrates the average annual turnover of businesses within the sample.
Figure 5.3 Average Annual Turnover
5.8.8 In keeping with the relatively small size of the businesses, average turnover within the sample was also relatively small. Only 27% of businesses surveyed had a turnover of greater than £1 million. Sixteen per cent of businesses within the sample turned over £100k or less on average.
Trading History
5.8.9 Despite the relatively small scale of businesses, 63% of those who responded have been trading for more than ten years, whilst a further 22% have been trading for between five and ten years. The businesses are therefore relatively well established.
Trading Performance Since 2008
5.8.10 The RET pilot was introduced in October 2008 and, therefore, an important question asked in the survey was how business profitability and turnover had changed since that year, albeit recognising that RET was not the sole factor, or indeed the most important factor, impacting on this particular metric.
5.8.11 A total of 59% of businesses noted that their turnover had increased either significantly or slightly since 2008. Similarly, 51% of business noted that their profit before tax had increased significantly or slightly since 2008. While a small number of businesses noted that their turnover and profitability had decreased, there was an overall general trend of improved business performance. These results coincide with difficult trading times more generally when economic activity has been suppressed and growth has been below its long term trend.
5.8.12 In spite of positive responses on recent performance, it was claimed by a number of businesses that fuel costs and the general reduction in activity, and therefore lower demand, are seen to be putting ever-increasing pressure on their financial performance in terms of lower revenue, turnover and profit.
Imports and Exports
5.8.13 Respondents were asked what type of goods they typically moved on and off the island. While there are too many responses to set out here, there is a clear trend of imported goods being either for the retail and hotel trade or, more prominently, as inputs for manufacturing, construction, agriculture and fishing / aquaculture. Only four (6.5%) companies who responded to this question answered that they do not import anything into the islands.
5.8.14 The majority of outbound goods are finished products heading for UK mainland or European markets. Eighteen firms (29%) noted that they do not export any goods from the islands. While not necessarily an indicator of the volume of trade, it provides a further indication that the majority of goods are imported rather than exported to and from the islands.
Transport and Ferry Costs
5.8.15 Respondents were asked what proportion of their total business costs are related to the transport of goods and supplies. The results are illustrated in Figure 5.4 below:
Figure 5.4 Transport Costs as a Percentage of Total Business Costs
5.8.16 The Figure shows that transport costs, as a proportion of total business costs, are mixed but relatively high in the islands. For example, 22% of respondents noted that the transport of goods accounts for over 25% of their total business costs. In addition, over 50% revealed that transport costs accounted for more than 10% of their total business costs. This compares with a figure of around 10% generally quoted for businesses across the country. In addition, transport costs of this magnitude are likely to make businesses relatively more susceptible to increases.
5.8.17 Respondents were asked what proportion of their total transport cost is accounted for by the ferry fare. The results are shown in Figure 5.5 below:
Figure 5.5 Ferry Fare as a Percentage of Total Transport Costs
5.8.18 Figure 5.5 clearly demonstrates the importance of the ferry fare to island businesses. Forty seven percent of businesses noted that the ferry fare accounts for more than 25% of their total transport costs. A business with ferry costs accounting for such a large proportion of its total transport costs is likely to be more sensitive to increases in fares if these are passed on by the haulier.
5.8.19 One important caveat here however is that, during the interviews, the majority of respondents did not have a firm grip on the precise figure for these costs. It is therefore possible that the above figures are an estimate by the businesses concerned.
5.9 Survey Findings - Routed Questions
5.9.1 Of the 49 businesses that filled in the main body of the survey, eight firms chose not to complete the routed sections. Of the 41 respondents who did complete the route questions:
- 31 businesses (78%) contract a 3rd party haulage or delivery company to move its goods and supplies by ferry between the mainland and the islands.
- 4 businesses (10%) use its own commercial vehicle (ie greater than 6m in length) to move own goods and supplies only.
- 1 business (3%) uses its own commercial vehicles (ie greater than 6m in length) to move a combination of own goods and those of others.
- 1 business (3%) uses its own commercial vehicles (ie greater than 6m in length) to move goods and supplies for others only.
- 2 businesses (5%) use cars / vans (ie less than 6m in length) to move all its goods and supplies by ferry between the mainland and the islands.
- 1 business (3%) does not directly use ferries to transport its goods/supplies because it buys/sells everything it needs from/to island-based suppliers/customers or 3rd party organisations which deal with the transport of the goods to/from the mainland.
5.9.2 An important point to emerge from these findings is that the majority of businesses (both from the interviews and the survey) tend to contract a 3rd party haulage or delivery company to move their goods and supplies by ferry between the mainland and the islands. This is simply because the scale of island businesses makes it inefficient for them to own their own vehicles / move their own goods. Even with the RET-related price rises, there appears to be little appetite amongst businesses, at least in the short term, for moving to their own transport. The firms that do use their own vehicles tend to be doing so either because they have specific requirements which the haulage industry can't meet.
5.9.3 Given the relatively low response rate for businesses not using a third party haulier, we do not consider the outcomes of this part of the survey here. We have instead integrated the findings from these sections into the wider analysis of the haulage sector in Chapter 4.
5.10 Businesses using a Third Party Haulage or Delivery Company
5.10.1 This section reviews the findings of the survey for those businesses using a third party contractor.
Impact of the Removal of RET for Commercial Vehicles
5.10.2 Thirty-three businesses responded to the question on whether increases in ferry fares since the removal of RET for CVs in April 2012 had been passed on to their business. Of these respondents, 88% noted that hauliers have passed on the increase in CV fares to their business. Over 68% of businesses expect this increase to be in the region of £1,000 to £5,000 per annum, while one business considers that it will cost them an additional £60,000 per annum.
Ability to Pass on Costs
5.10.3 Respondents were asked if they have passed on the increase in CV fares since April 2012 to their customers. The response here was mixed - 42% of businesses responded that they could not or would not pass on additional haulage costs to their end customers. In contrast however, 27% of businesses noted that they will pass on the full cost to their end customer; 18% said they would pass on a small proportion of the extra cost; while 12% said they would pass on a large proportion of the costs.
5.10.4 In terms of future ferry fare increases, 70% noted that they could not pass on any further increases in haulage costs to their customers. Consequently, 88% of respondents noted that they expect the future viability of their businesses to be affected by the forthcoming rise in CV fares on the ferry[14].
5.10.5 This perhaps reflects the size of the businesses that responded to the survey and the size of businesses in the Western Isles more generally. Small firms are particularly vulnerable to the removal of RET for CVs because they do not have sufficient scale to buy in bulk, set prices or negotiate effectively. They are essentially price takers and would generally expect to find the full cost of the RET related rises passed onto them, either directly from haulage firms or through the wider supply chain.
Control Group
5.10.6 To fully understand and estimate the impact of removing RET fares for commercial vehicles, a series of interviews was proposed with a 'Control Group'. From a methodological point of view, the purpose of a control group is to be able to isolate the impact of an intervention on two statistically matched groups, with one group the subject of that intervention and the other not. Strictly speaking, the intervention (in this case the removal of RET fares for CVs) should be the only difference between the two groups, meaning that any change in behaviour in the affected group is directly attributed to that intervention. The islands chosen were Arran, Islay and Mull.
5.10.7 While this approach is theoretically sound, its practical implementation proved to be somewhat more difficult. Firstly, the low response rate to the RET business questionnaire ruled out the use of a similar questionnaire with the control group - ie members of the control group had no incentive to fill in such a questionnaire so the response rate would likely have been very low and largely meaningless. In order to address this, a series of detailed telephone interviews was undertaken with the main hauliers serving Arran, Mull and Islay. These interviews considered how and why haulage rates have changed on each of these islands between 2008 and the present, and attempted to draw parallels with companies which had been involved in the RET pilot.
5.10.8 Given the complexity of the industry however and the uniqueness of some of the island economies in question, one must acknowledge that RET is not the only difference between the two groups. Therefore, while some important findings were gathered from the control group, they cannot in themselves be taken as statistically significant evidence of the impact of RET.
5.10.9 The companies who responded to the consultation included:
- Arran Haulage (Arran);
- Iain MacKinnon (Tiree based haulier who also serves Mull);
- Mundell Transport (Islay); and
- TSL Contractors (Mull).
Key Finding
5.10.10 The haulier specific comments are covered in Section 6.3. However, it is important here to focus on the key finding from the control group interviews, as it has the greatest relevance in terms of its comparison to the RET group.
5.10.11 Haulage firms in Coll, Tiree and the Western Isles noted that, while they did not pass on the RET benefits in terms of reduced rates, the fares scheme provided a cushion against other rising costs and thus forestalled a rise in transport charges. Where RET was the only difference between the two groups, one would expect transport charges haulage rates in the control group to rise in line with industry cost pressures.
5.10.12 Our interviews found that this was not the case - rates amongst the control group haulage firms have been largely static throughout the RET period. However, the interviewees noted that these stable rates are a product of greater exposure to mainland competition and a series of local factors. There was a view amongst these hauliers that they would have increased rates if they could have done so within the context of their market.
5.11.1 A number of clear and consistent themes emerged from the business interviews and survey. In general, the introduction of RET for CVs was seen by a large majority as a highly positive development for island businesses and its subsequent removal has had some negative impacts on many businesses and the wider economy.
5.11.2 At a strategic level, businesses in the Western Isles, Coll and Tiree were almost universally concerned that the lack of certainty and frequent fares policy changes are having adverse effects on business confidence and activity and impacting on long-term investment planning.
5.11.3 Businesses broadly supported the view that hauliers had used RET to help maintain stable prices during a period when other costs were rising rather than pass on RET in the form of lower transport charges.
5.11.4 Businesses noted that the removal of the TRS discount when RET was introduced also made the haulage market much more competitive, thus increasing the downward pressure on haulage rates. This stabilisation and occasional reduction of rates allowed island businesses to compete more readily in mainland markets; against national chain firms within the islands; and with mainland shopping trips and internet shopping.
5.11.5 The removal of RET for commercial vehicles has had a negative impact on businesses that are particularly moving or purchasing a low volume of goods; moving low value goods; or where the company is a price taker in the market. The economies of the Western Isles, Coll and Tiree are represented by a relatively higher share of businesses within industries which display at least one or more of these characteristics, including small scale / independent retail; agriculture; aquaculture and fishing; construction; and low value manufacturing. The removal of RET for CVs is therefore seen to be hitting the most marginal businesses in the community the hardest. There was a general consensus that further increases to non-RET fares for CVs will fundamentally affect the long-term viability of many businesses within the islands.
5.11.6 The removal of RET for CVs in parallel with its retention for cars also serves to worsen the competitive position of a number of independent retail business, who are competing with mainland chain stores; mainland shopping trips; and internet shopping. A number of firms explained that customers are now taking the car to the mainland or ordering high value products online with companies who have low cost or zero delivery charges.
5.11.7 Responses to the business survey reveal that transport costs as a proportion of total business costs account for more than 10% of costs in the majority of companies on the islands. In addition, for just under half of businesses the ferry fare accounts for around 25% of transport costs.
5.11.8 Discussions with a small number of hauliers in the control group revealed that transport charges did not rise in other islands during the period of the RET pilot. However, this was due to various local factors and increased competition from mainland hauliers.