Research and Analysis of Options for Ferry Freight Fares

3 Current Practice Non-CV-Freight

3.1 Overview

3.1.1 This chapter summarises current practice with regards to the charging of non-CV freight on Scotland's publicly supported ferry networks. An extensive working paper covering the specifics of non-CV freight charging in some detail is provided as an addendum to this report and is available on the Transport Scotland website.

3.2 What do we mean by Non-CV Freight?

3.2.1 In advance of reviewing current practice, it is worth briefly pausing to review what we mean when referring to 'Non-CV Freight'. In our initial proposal for this study, we defined what we thought to be the different types of non-CV freight. This was confirmed at the first project Working Group Meeting and formed the basis of the reporting in the early tasks. The agreed types of non-CV freight were therefore defined as:

  • unaccompanied (e.g. drop trailers);
  • freight on mafi trailers;
  • agricultural vehicles and equipment (self-powered or towed);
  • specialist Industrial plant and equipment (self-powered or towed);
  • loose loaded cargo (e.g. bags and pallets);
  • livestock cassettes;
  • loose livestock;
  • containers (LoLo);
  • abnormal or wide loads;
  • other goods craned and lifted onto the vessel; and
  • any other types not included above.

3.2.2 The next section briefly summarises the types of non-CV freight carried on each of Scotland's publicly supported ferry networks and the means by which it is charged.

3.3 Network Specific Findings

Argyll & Bute Council

  • Argyll & Bute has two Ro-Ro routes and two passenger only routes. The business model on the vehicular services involves the carriage of freight from quay-to-quay only.
  • there is very little non-CV freight moved on the network - the majority of freight is either consolidated onto a commercial vehicle or taken onto the ferry as hand-baggage.
  • fares for non-CV freight on the Ro-Ro routes are determined on the basis of lane metre bandings. The Council previously used a weight based measure but converted to lane meterage in 2013 due to disputes over the definition of a commercial vehicle in a weight based tariff structure.
  • the fare level is a reflection of historical precedent. The prevailing fares when Argyll & Bute Council assumed control of the services have been maintained and simply uprated for inflation.

CalMac Ferries Ltd

  • CalMac Ferries Ltd operate the most complex of Scotland's domestic ferry networks, serving 30 routes (two of which are seasonal) and 49 ports across 22 island communities. The CHFS network, perhaps more than any other, has been tailored to meet island specific needs over a long period.
  • with some limited exceptions, CalMac operate the carriage of freight from quay to quay, with no handling activity pre or post journey beyond immediate loading to and from the vessel if this is not organised by the customer.
    • exceptions include the Mallaig - Small Isles route, where CalMac offer a freight consolidation, carriage and onward delivery service on company owned vehicles.
  • CalMac carry a wide variety of non-CV freight, including agricultural vehicles and equipment; mafi trailers; specialist industrial plant and equipment; abnormal and wide loads; loose loaded cargo on the Firth of Clyde, Small Isles and Sconser - Raasay; and drop trailers on the overnight freight service between Stornoway and Ullapool.
  • fares on the CHFS network are set in the tendered contract administered by Transport Scotland. There is no flexibility to change fares in CalMac's contract without Transport Scotland's consent - fares are clearly defined in the tender and are reviewed annually by Scottish Ministers. The annual review typically involves a percentage fares increase applied to all fare types, including those for non-CV freight.
  • the standard charging unit for any wheeled freight is the lane metre, with charges being levied in incremental half lane metres above six metres on RET routes and five metres on non-RET routes. Excess charges are levied for wide loads. Loose freight is typically charged on the basis of weight bandings.
  • there are a number of generally historical inconsistencies in the fares structure for non-CV freight on the CHFS network - these are contractually mandated in the tendered service specification and include:
    • the operation of the drop trailer service on the overnight freight service on the Stornoway - Ullapool route. This service offers a reduced lane metre charge because no tractor unit is carried and a 10% discount for using the overnight freight only service. For operational reasons, a drop trailer service is not currently operated on any other route.
    • in recognition that there are limited prospects for obtaining a backload on various types of agricultural vehicles, these freight classes are only charged on the outbound leg of the journey or receive some other discount. The tariff on the return journey is limited to the pier dues (where applicable), which are simply pass-through revenue to the port authority.
    • differences between RET and non-RET routes. For example, vivier trailers benefit from a free return journey (except for the payment of pier dues) on RET routes, something which is not the case on non-RET routes. This is the result of a specific concession made by the Minister.
    • freight groupage (ie grouping small individual consignments of freight into a single vehicle, usually in pallets) services are undertaken by CalMac on the Mallaig - Small Isles route only.
    • loose parcel services are operated on the Firth of Clyde routes but on no other part of the network.
  • CalMac explained that the current fares system reflects a series of arrangements developed over time "which work". The company would welcome simplification of the fare system (such as through RET) but made it clear that care must be taken not to unnecessarily disrupt some of the current arrangements which, whilst inconsistent, are key to the social and economic wellbeing of a number of island communities.
  • the key issue for CalMac at present is the impact on CV carryings on the RET routes brought about by the change in the length threshold of a car / van from five metres to six metres.

Highland Council

  • Highland Council operates / tenders a combination of Ro-Ro and passenger only routes. The business model on the vehicular services involves the carriage of freight from quay-to-quay only.
  • there is very little non-CV freight moved on the network - the majority of freight is either consolidated onto a commercial vehicle or taken onto the ferry as hand-baggage.
  • fares on the Corran Ferry are determined by weight, in the same manner as occurs for CVs. Freight fares on the Knoydart Sea Bridge are set at the operator's discretion - the contract states that freight must be carried but does not set out a tariff structure for this, although charges are believed to reflect a reasonable cost recovery to operate the service.
  • there was little information on the rationale underpinning current fare levels, although in most cases, it appears the fares reflect historical rates uprated for inflation.

Orkney Islands Council

  • Orkney Ferries operates a combination of Ro-Ro and non-Ro-Ro ferries, including Lo-Lo operations where goods are craned onto and off of the vessel. The majority of freight is typically Ro-Ro in nature, although Graemsay, North Ronaldsay and Papa Westray do not have Ro-Ro facilities and still make use of Lo-Lo (lift-on, lift-off) crane operations.
  • non-CV freight is a very low proportion of overall freight shipped. Non-CV freight carried includes drop trailers and loose items (on Lo-Lo routes in particular).
  • Orkney Ferries' business model involves the carriage of freight from quay-to-quay only. There are no handling activities pre or post journey beyond immediate loading to and from the vessel by crane where required. The loading of unaccompanied Ro-Ro traffic is the responsibility of the customer or, in exceptional circumstances, the vessel crew.
  • non-CV fares on Ro-Ro routes are typically determined by incremental half lane metres (for vehicles longer than 5 metres), whilst on non-Ro-Ro routes, tonnage (ie weight) is the measure used.
  • there was little information on the rationale underpinning current fare levels, although in most cases, it appears the fares reflect historical rates uprated for inflation.
  • Orkney Islands Council sets the tariff structure and levels. Annual reviews are generally carried out, with the consent of Elected Members required for the next year's tariffs.
  • there are a number of inconsistencies in the tariff structure, most notably price differentials between lane metre and weight based charges for the same commodities. Charges also have little correlation to the cost of operation or crossing length.
  • the current tariff structure is well understood by users but the Council explained that the lack of correlation to distance or operating costs means that this is seen by some people to be unfair.
  • a 50% tariff discount is available for freight companies based in the islands and 25% tariff discount is available for companies based on Orkney Mainland.

Serco NorthLink Ferries

  • Serco NorthLink Ferries operates three routes using a combination of large, modern Ro-Ro vessels and dedicated freight vessels on time charter.
  • Serco NorthLink's business proposition involves the carriage of freight from quay to quay; tariff inclusive holding of trailers within a defined area of the quayside for an indefinite period; handling of trailers and loads to and from the vessel; and all necessary securing of the equipment to the vessel for the voyage.
  • types of non-CV freight carried include loaded and empty drop trailers; livestock cassettes; bulk bag freight; roll trailers (mafi); agricultural plant and equipment; industrial plant and equipment; containers and project related cargo.
  • the structure and level of tariff set by Serco NorthLink is a contractual requirement of the Public Service Contract. Serco NorthLink explained that the current structure and level of the tariff is consistent with that offered by the previous operator, although the company has no understanding of the original basis of the fare.
  • the default charging unit for all freight, CV or otherwise, is the lane metre, or lane metre equivalent.
  • the current rate structure is set in a way that does not allow the business to match supply and demand across the network.

Shetland Islands Council Ferries

  • Shetland Islands Council operates a combination of Ro-Ro and non-Ro-Ro ferries, including Lo-Lo operations where goods are craned onto and off of the vessel. The majority of freight is typically Ro-Ro in nature.
  • Shetland Islands Council offers the carriage of freight from quay to quay, with no handling activity pre or post journey beyond immediate loading to and from vessel if not customer organised.
  • non-CV freight carried includes agricultural vehicles and equipment; specialist industrial plant and equipment; loose loaded cargo; and abnormal / wide loads. As with the majority of the other networks, non-CV freight makes up a very small proportion of the total.
  • the structure of the tariff relates to vessel type - non-CV freight on Ro-Ro vessels is typically charged on the basis of lane metre bandings, whilst non-Ro-Ro freight is charged on the basis of weight (tonnage). There is no correlation between the tariff for freight, accommodation of freight on the vessels and the vessel operating costs on the route. Tonnage charges, where used, also have no relationship with the lane metre equivalence.
  • the tariff level on the internal Shetland services is largely based on historical convention. The fares have a very weak correlation to route distance and operating costs.
  • Shetland Islands Council has sole responsibility for setting and approving the tariff.
  • the Council see the current system as being equitable and low-cost to the user. However, they acknowledge that the fares structure has limited or no correlation with operating costs and route distance.

3.4 Non-CV Freight - Key Issues

3.4.1 This section sets out some of the key issues pertaining to non-CV freight which should be considered in developing options for a new fares system.

The Market for Non-CV Freight

3.4.2 One of the most pertinent findings to emerge from our research is the evolution in the means by which freight is carried on ferries. A brief review of the history of many of Scotland's ferry routes, particularly in the Clyde & Hebrides, hints at the importance of loose freight to the overall demand for ferry connections. Many of the earliest ferry services throughout the UK were known as 'packet' services which, as the name suggests, were intended to raise revenue from carrying loose cargo as well as passengers. Ferry connections were actually often scheduled liner services calling at multiple ports to deliver freight, post and parcels to the islands.

3.4.3 The advent of the Ro-Ro era gradually began to change the way in which freight was conveyed over water. Road haulage firms began to compete for parcel and packet carriage, offering consolidated shipments at low prices. This trend accelerated throughout the 1970s, 80s and 90s. The growth of the road haulage market and Ro-Ro ferries meant that the traditional relationship between the freight customer and ferry companies began to change. Before the mass market penetration of road haulage, customers would organise conveyance of goods directly with the ferry company, which would in turn have a lengthy tariff list for all types of individual commodities. This still happens on a handful of routes in Scotland and in neighbouring European countries like Ireland and the Netherlands.

3.4.4 However, on the majority of ferry routes in Scotland, there has been a clear trend towards the consolidation of small individual consignments onto vans and large commercial vehicles. Prices for individual goods still therefore exist, but it is now the haulier and not the ferry company which charges these rates to the customer. This situation has been further amplified by the emergence of parcel delivery providers such as FedEx, DHL and UPS, who deliver van-based consignments direct to individual addresses. This process has led to a situation where the carrying of non-CV freight is now a very marginal element of total freight, even on the smallest Ro-Ro routes. Even within this category, the majority of freight being moved is CV derived - eg drop trailers, mafi-trailers, wide loads etc.

3.4.5 In responding to this change, operators have generally simplified their tariff structure, with fares being based typically on a single variable. Such freight has also become of relatively little significance to an operator and disaggregated data on what is being carried and to where it is being carried are limited.

Ferry Operations

3.4.6 Modern day ferry operations are very time pressured - companies need to maintain a timetable and ensure that they comply with regulations on crewing hours. Of critical importance in this respect are vessel turnaround times whilst in port, which range from around five minutes on a number of routes in the Shetland Islands and several Loch Class routes in CHFS, to 30-45 minutes for larger vessels such as the MV Isle of Lewis and MV Clansman.

3.4.7 These challenging operating conditions create a desire amongst ferry companies to minimise the carriage of any freight which is not self-propelled. For example, drop trailers are only accepted on the less time sensitive overnight freight route between Stornoway and Ullapool, the Serco NorthLink routes to the Northern Isles and internal Orkney Islands routes (although they are discouraged by Orkney Ferries).

3.4.8 Where an operator does have to carry freight which is not self-propelled, it is common to group such freight onto wheeled vehicles (eg mafi trailers, vans and standard CVs) at the quayside. This happens from some of the longest routes, such as those operated by Serco NorthLink, through to much smaller operations. Indeed, even on the routes to the Small Isles and Sconser - Raasay (where CalMac is effectively the haulier), goods are grouped onto commercial vehicles (typically vans) at the quayside before being shipped. Similarly, Orkney Islands Council operates a freight consolidation facility at Hatston, which allows consignments being sent to the islands to be grouped into self-propelled vehicles.

3.4.9 Going forward, it seems likely that ferry companies will continue to seek ways of reducing non-CV freight as it impinges on operational efficiency and potentially adds to cost.

Redefinition of CV Lengths

3.4.10 The recent redefinition on RET routes of the length at which a car / van becomes a commercial vehicle from five metres to six metres has also had an impact on non-CV freight. This change has to some extent reduced consolidation of goods into large commercial vehicles (reducing CV carryings markedly). It has made it easier to convey small consignments (eg bags, pallets etc) in a "pal's van" rather than on a CV, reducing the amount of non-CV freight carried by CalMac, but also reducing revenue from CV carryings and driving up the subsidy.

Rationale for Non-CV Charging

3.4.11 As a general rule, the basis for vehicle and freight fare setting on a ferry is to charge the customer on the basis of the scarcest of 'commodities' which they are consuming - this commodity on a Ro-Ro ferry is typically vehicle deck space, expressed in terms of lane metres or a lane metre equivalent (as the majority of ferry decks are divided into lanes designed to accommodate vehicles of a relatively standard width).

3.4.12 On almost all routes across all publicly supported ferry networks in Scotland, the common basis of charge is the lane metre or some form of lane metre equivalent (eg a set number of loose bags per lane metre). The use of lane metres as the basis of charging provides a consistent, transparent and easy to understand fare structure.

3.4.13 There is some difference between networks which use an incremental half lane metre or lane metre (CalMac and Serco NorthLink) for charging compared to lane metre bandings (eg Shetland) as the basis of the charge. The latter is simple and easier to administer, but it can lead to incentives at the margin to keep a vehicle within a particular length class, as the incremental step in fare to the next banding could be substantial. This was a common issue faced by CalMac with vans which were specially designed (or hastily amended) to fall within the length of a standard car.

3.4.14 On routes not operated by Ro-Ro services, such as those to North Ronaldsay and Papa Westray, the basis of the charge is often weight / tonnage, typically defined in a series of weight bandings.

3.4.15 Where a vehicle exceeds the footprint of a standard lane metre, typically in terms of width, some operators, such as CalMac and Orkney Ferries, will levy a surcharge to account for the fact that the freight is consuming a potentially revenue earning area of deck space. Surcharges can also be levied for excess weight. Whilst the majority of ferries can convey large payloads, some smaller vessels have deadweight restrictions. Therefore, where a single piece of freight is putting an excess weight burden on a vessel, a surcharge may be levied.

3.4.16 There are a number of inconsistencies in the charging basis on different networks. For example, one type of inconsistency that can be seen is the fare differences for carrying the same commodity depending on whether it is defined on the basis of length or weight. There are also many examples of where the fares for routes of a similar length differ markedly.

Level of Current Fares

3.4.17 Whilst there is generally a rationale for the charging of non-CV freight, an issue to emerge across all of Scotland's publicly funded ferry networks is the lack of a clear basis for current fare levels. There was very little understanding amongst the majority of operators as to why fares are set at their current rates. In many cases, it appears that the fares charged are based purely on historical precedent and bear little relation to distance or cost of operation. The common practice has been to apply an annual inflationary increase to all fare classes.