Research and Analysis of Options for Ferry Freight Fares
5 Options Development
5.1 Overview
5.1.1 This chapter sets out the option development and appraisal process. The options developed and other issues raised as part of this process formed the basis of the consultation, which is reported in the next two chapters.
5.2 The Appraisal Framework
The Ferries Plan
5.2.1 The criteria for assessment for this study were based on the findings of the Ferries Plan. In the Ferries Plan 2013-2022, Transport Scotland committed to carrying out a review of freight fares policy. The aim of this review is to deliver a new fares structure for commercial vehicles (CVs) and to develop an overarching set of principles and procedures for the setting of fares for freight carried by trailers, containers and other means (excluding CVs), both of which are to be implemented across all Scottish Government directly subsidised ferry services.
5.2.2 The Ferries Plan noted that any new fares structure would need to adhere to the following three principles:
- simple and transparent;
- does not advantage one part of the network over any other part; and
- balances the wellbeing of communities against the public sector cost.
Our Islands, Our Future
5.2.3 In the period since this research commenced, the Scottish Government has issued its Empowering Scotland's Island Communities Prospectus as part of the "Our Islands, Our Future" initiative. This initiative specifically addresses the issue of ferry fares, stating that:
- "The Scottish Government is committed to assessing the affordability of ferry travel to and from island communities, with the aim of bringing in fairer fares for islanders, tourists and businesses".
5.2.4 The commitment from the Prospectus forms part of the context for the research undertaken and the development of options.
Criteria for Assessment
5.2.5 The criteria for assessment reflect the outcomes of the Ferries Plan and create a framework for future freight fares policy on the Transport Scotland subsidised ferry services.
5.2.6 It should be noted that, at this stage, the criteria are high level and have not yet been made 'SMART'[6].
5.2.7 The criteria for assessment were defined as:
- acceptability: Acceptable to the freight industry, island business communities and the wider island community.
- affordability: Affordable for the Scottish Government, by ensuring any change to the fares structure is sustainable going forward.
- consistency: Fares are set in a consistent manner, i.e. in a way that involves applying the new fares regime, e.g. distance based or volume based, in a consistent and equal basis across all directly subsidised Scottish ferry routes. Applying the fares regime consistently will remove any perceived anomalies in the setting of freight fares, and will ensure that no part of the network is advantaged relative to another part.
- sustainability: The level of fares supports the future sustainability of island local economies and communities.
- transparency and simplicity: Simple for the directly subsidised ferry operators to put in place and operate and transparent so that users can easily understand how fares are set.
5.2.8 In addition to the above five criteria, a pre-requisite for any option, before the criteria are applied, is that it is legal, i.e. compliant with State Aid rules and other legal requirements.
5.2.9 A scale of 1-5 is used to assess the extent to which each option meets the criteria. Descriptors of the scoring, which are tailored to each criterion, are provided below:
- acceptability: 1: unacceptable to all groups; 2: unacceptable to most groups; 3: unacceptable to some groups and acceptable to others; 4: acceptable to most groups; 5: acceptable to all groups
- affordability: 1: increases the subsidy paid significantly; 2: increases the subsidy a little; 3: no impact on the subsidy; 4: reduces the subsidy paid a little; 5: reduces the subsidy paid significantly.
- consistency: 1: fares are set in different ways across all parts of the directly subsidised ferries network and there is significant advantage for some parts of the network over other parts; 2: fares are set in different ways across most of the directly subsidised ferries network and there is some advantage for some parts of the network over other parts; 3: fares are set in the same way in some parts of the network but not others and there is little advantage for some parts of the network over other parts; 4: fares are set in the same way across most of the directly subsidised ferries network and there is very little advantage for any part of the network over other parts; 5: fares are set in the same way across the whole directly subsidised ferries network and there is no advantage for any part of the network over other parts.
- sustainability: 1: significantly risks the future sustainability of island economies and communities; 2: risks future sustainability somewhat: 3: no likely impact on future sustainability; 4: likely to increase future sustainability somewhat; 5: likely to increase future sustainability significantly.
- transparency and simplicity: 1: not feasible to put in place and operate and very difficult to understand; 2: difficult to put in place and operate and quite difficult to understand; 3: no more easy to put in place or more transparent/easy to understand than the current framework; 4: relatively simple to put in place and operate, fairly transparent and quite easy to understand; 5: very simple to put in place and operate, fully transparent and very easy to understand.
5.3 Option Development and Assessment
5.3.1 In our initial discussions, we attempted to distinguish the different elements of the fare system so as to better understand precisely what we were developing options for. This exercise identified five distinct considerations for this study:
- the charging mechanism - i.e. on what basis is the charge being levied?
- fare types- i.e. in what ways can the charging mechanisms be set?
- discounts - i.e. should there be any discounts on the fares?
- surcharges - i.e. should there be any surcharges on the fares?
- policy questions - i.e. what is the most appropriate way to define a commercial vehicle?
5.3.2 The following flowchart sets out the process for developing a new fares structure:
Figure 5.1: Fares Development Process Chart
5.3.3 The figure above shows that the first step in devising a new freight fares policy is to define the basis of the charge - i.e. what variable(s) will be used to determine the fare. Having done this, the next step is to develop and test a series of fare types for a new, over-arching, freight fares policy.
5.3.4 Once the basis of the charge and broad fare types for the fares options are established, the next step is to consider any discounts, the type of surcharges and wider policy questions (such as the definition of a CV, or the carrying of loose parcels).
5.3.5 The final step in the process is the options to be taken forward for further consideration.
5.4 Charging Mechanism
5.4.1 Fares for CVs and non-CVs can be based on one or more variables, including:
- length;
- width;
- height;
- volume;
- weight;
- piece rates (principally for loose packages); and
- headage rates (livestock).
5.4.2 All fares on the CHFS and Northern Isles network are based on a single variable. This is consistent with subsidised operators in other countries, although it is in contrast to commercial operators, which use a complex matrix of composite variables to establish bespoke prices for their customers.
5.4.3 CV fares on the CHFS network are based on the lane metre, although non-CV rates are based on one of lane metres, weight or headage. Fares on the Northern Isles routes are based exclusively on the lane metre (or lane metre equivalent).
5.4.4 Our review of domestic and international experience found that the basis of the charge is typically levied on the scarcest of commodities being consumed, generally the lane metre (as available lane metres are the constraining factor on a vessel's vehicle deck).
5.4.5 Following consideration of this issue during our workshop with Transport Scotland, it was agreed that a single variable, the lane metre / lane metre equivalent should be used as the basis for all CV and non-CV fares on the CHFS and Northern Isles networks. This is primarily a reflection of the principle of pricing on the basis of the scarcest commodity, i.e. car deck space in this case. The only exceptions to this would be:
- the parcel traffic on the Firth of Clyde and Sconser - Raasay; and
- the loose freight service on the route between Mallaig - Small Isles. This route will always remain an exception unless the proposed service amendments in the Ferries Plan, which include a dedicated freight vessel for the Small Isles, are taken forward.
5.4.6 Weight restrictions would be limited to the vehicle remaining within its plated (i.e. legal) weight.
5.5 Current Fares
5.5.1 There are two broad principles governing current fares:
- fares vary by vehicle length; and
- the £/Lane-Metre charged reduces with route distance, ie a ferry trip of 40 miles costs less than double the price of a 20 mile ferry trip.
5.5.2 The 2012-13 published fares are analysed further below, note that 2012-13 is used as this corresponds to the operator revenue data provided and referred to later in this paper.
Published Fares
5.5.3 The figure below shows the 2012-13 CV fares per lane-metre by route together with the route distance. Routes are ordered left to right in terms of distance length. Where the £/lane metre varies with vehicle length (as is the case with some Western Isles, Coll and Tiree routes) the £/lane metre has been taken from the average length of the vehicle carried on that route.
Figure 5.2 2012/13 Fares (£/lane metre) and Route Distance
5.5.4 The current fares system therefore reflects an approach whereby the £/lane metre for a CV broadly increases with route distance as would be expected, ie it costs more to transport a CV of a given length further.
5.5.5 However, the relationship between the £/lane-metre and the route distance is not totally consistent. For example:
- it costs £10.65/m on Uig to Tarbert/Lochmaddy (29.2 miles) yet more than double that, £24.90/m from Oban to Colonsay (36.6 miles);
- Ullapool to Stornoway is cheaper than Kennacraig to Islay despite being 20 miles longer;
- Ardrossan-Brodick is cheaper than Oban-Craignure and Berneray-Leverburgh despite being a longer route; and
- Scrabster-Stromness and Oban-Colonsay fares are very high compared to routes of similar length.
5.5.6 In general, the former RET route fares (shown in red in the figure) were still low compared to other routes of comparable distances in 2012/13. This gap will have closed somewhat with the 10% fares increase on former RET routes in 2013/14 (relative to around 2.6% for other routes).
5.5.7 Note that Ardmhor-Eriskay and Berneray-Leverburgh have high fares per lane-metre relative to routes of a similar length. The fares charged may reflect the original longer routes (Castlebay-Lochboisdale and Lochmaddy-Tarbert respectively).
5.5.8 Unless a fares policy is attempting to reflect route specific issues such as the cost of provision, it would be reasonable to aim for a system where the basic fare paid (ie pre any discounting) would increase with distance without any of the anomalies seen above.
Published & Outturn Fares
5.5.9 There is a level of discounting and surcharging present across the subsidised ferries networks in Scotland. If there were no surcharges or discounts, the revenue generated would reflect only the published fares and the lane metres carried. This can be thought of as Gross Revenue. In reality, the revenue generated is less than that, ie the net impact of surcharges and discounts is to reduce this gross revenue to Outturn Revenue.
5.5.10 In the analysis undertaken here, the estimated Gross Revenue is on average 9% higher than the outturn revenue reported by the operators, ie the net effect of discounts and surcharges is to reduce revenue by around 9% across the whole network.
5.5.11 For the purposes of the fares analysis which follows here, new fares have been estimated which would reproduce the Gross Revenue, and these can therefore be compared to the published fares. The issue of discounts and surcharges can then be considered separately.
5.5.12 In determining these initial estimated fares, we have assumed no demand response to the fares changes. However, the impact of the 'new' fares on demand and hence revenues can be calculated assuming a low elasticity of response to fares changes, as evidenced in the original RET evaluation work. The impact on overall revenue is typically less than 5%, so by an iterative process a final set of fares could be established, ie applying minor adjustments to the fares reported here.
5.5.13 Note that the data provided by CalMac and NorthLink are commercially confidential so are not quoted directly in this report.
5.6 Development of Fares Options
5.6.1 The initial list of 15 options is provided below together with a brief description of each and the rationale for the scoring against the assessment criteria. The assessment criteria were used as part of the initial sift, with a view to identifying a shortlist of options which broadly delivered against the criteria and could thus be taken forward for further assessment.
| Fare Type | Acceptability | Affordability | Consistency | Sustainability | Transparency & Simplicity | TOTAL | |
|---|---|---|---|---|---|---|---|
| 1 | No charge | 5 - free fares would clearly be acceptable | 1 - the subsidy paid would increase significantly | 5 - free fares are completely consistent | 5 - free fares would be expected to boost island economies | 5 - free fares are completely transparent and simple | 21 |
| 2 | Revenue maximisation | 1 - would lead to significant fares increases | 5 - would reduce subsidy significantly | 3 - there would be some variance across the network reflecting the different markets | 1 - much higher fares would threaten island sustainability | 2 - fares would reflect the commercial position which would not be transparent | 12 |
| 3 | Cost recovery at network level | 1 - would lead to significant fares increases | 4 - subsidy would be reduced | 3 - there would be some variance across the network reflecting the different markets | 2 - higher fares would threaten island sustainability | 2 - fares would not reflect the cost base which would not be transparent | 12 |
| 4 | Road Equivalent Tariff | 4 - the resulting fares reductions would be acceptable to most, although the shortest routes may not benefit | 1 - subsidy paid would increase significantly | 5 - fares setting would be consistent across the network | 3 - the impact would likely be broadly neutral | 4 - the principle is clear but the charging formula is complicated | 17 |
| 5a | Best Fit Function - £/mile | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 4 - the 'best fit' function may be hard to understand | 18 |
| 5b | Fixed Charge plus Constant £/mile | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 4 - the Fixed plus Variable formula may be hard to understand | 18 |
| Fare Type | Acceptability | Affordability | Consistency | Sustainability | Transparency & Simplicity | TOTAL | |
| 5c | Fixed Charge plus Banded £/mile | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 4 - the Fixed plus Tapered Distance based Variable formula may be hard to understand | 18 |
| 5d | Network Wide, £/mile | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 5 - very straightforward | 19 |
| 5e | by Route Group, £/mile | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 4 - Route Group definition is open to debate | 18 |
| 5f | by Vessel Type, £/mile | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 5 - very straightforward | 19 |
| 5g | by Route Distance Band, £/mile | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 5 - very straightforward | 19 |
| Fare Type | Acceptability | Affordability | Consistency | Sustainability | Transparency & Simplicity | TOTAL | |
| 6a | Network Wide, £ | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 5 - very straightforward | 19 |
| 6b | by Route Group, £ | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary | 4 - Route Group definition is open to debate | 18 |
| 6c | by Vessel Type, £ | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary though | 5 - very straightforward | 19 |
| 6d | by Route Distance Band, £ | 3 - a distributional change which will see some fares increase and some fall | 3 - Broad revenue neutrality assumed | 5 - fares would be set using the same approach across the network | 3 - the impacts on individual islands will vary though | 5 - very straightforward | 19 |
5.6.2 Following a Scottish Transport Appraisal Guidance (STAG) approach, where all potential options are included until there is a clear rationale for excluding them, options 1, 2, 3, and 4 were sifted out at this stage, principally on the grounds of scoring a 1 on Acceptability (ie being unacceptable to all groups) or on Affordability (ie resulting in a significant increase in subsidy).
5.6.3 In terms of the other options (5a-5g, 6a-6d) we have assumed for simplicity that these fares would be developed on a broadly revenue neutral basis and it can be seen that, on this basis they all have a similar score.
5.6.4 However, the Route Group options (5e and 6b) are also sifted out at this stage because:
- the route group is a somewhat artificial definition, and is a proxy for route distance, which is better represented by distance bands
- they offer no obvious advantage over other formulations
5.6.5 In addition, the Vessel Type options (5f and 6c) are also sifted out because:
- this formulation would only really be logical if the fares were linked to the costs of operating the vessels rather than the amount of revenue raised; and
- again these options offer no obvious advantage over other formulations
5.6.6 There are therefore seven fares types taken forward for quantitative analysis and these are recapped in the table below. It is assumed that these fares would all be applied on a per lane metre basis and that there would be a linear relationship between vehicle length and fare charged on any given route, ie a 14m vehicle would be twice the price of a 7m vehicle. For the sake of simplicity, the option numbering has been altered to restart at 1.
|
Distance Based Route Specific £/Miles |
Distance Based £/Mile | Fixed ie Flat Fare |
|---|---|---|
| (1) 'Best Fit' - Variable rate per lane metre per mile | (4) Constant rate per lane per mile | (6) Flat fare per lane metre |
| (2) Fixed Charge plus constant rate per lane metre per mile | (5) Constant rate per lane metre per mile within distance band | (7) Flat fare per lane metre within distance band |
| (3) Fixed Charge plus rate per lane metre per mile based on distance threshold |
5.7 Analysis of Impact of Potential Fares Systems
Revenue and carryings data (2012-13) were obtained from CalMac and Serco NorthLink and these data were used to undertake analysis to identify the distributional impacts of the shortlisted approaches to fares setting, ie to identify where fares would rise or fall compared to current prices. The approach taken to this analysis is outlined below.
For Distance Based fares:
- we know total lane metre-miles moved across the network
- we know the gross revenue associated with this (ie obtained from published fares)
- we can therefore obtain a rate for Gross £ per lane-metre-mile (revenue / lane-metre-miles)
- on each route we can then establish an average vehicle fare by using
- £ per lane-metre-mile
- average vehicle length carried on that route (metres)
- route distance (miles)
- this process can be also applied to any sub-group of routes using the lane-metre-miles and revenue totals for each sub-group of routes
For Flat Fares:
- we know total lane-metres carried across the network
- we know the gross revenue associated with this
- we can therefore obtain a rate for Gross £ per lane-metre across the network (revenue / lane-metres)
- on each route we can then establish an average vehicle fare by using
- £ per lane-metre
- average vehicle length carried on that route (metres)
- this process can be applied to any sub-group of routes using the lane-metre and revenue totals for each group of routes
Fare Types Analysis
Note that the following initial quantification of fares and changes in fares is intended to be illustrative only. They do not represent a final set of fares and are presented here with a view to demonstrating the potential scope and scale of fares changes if any of these broad approaches to fares setting were to be adopted. Were any of these fares types to be taken forward, they would be further honed to develop a definitive set of fares.
Note also that any future fares regime would be introduced on an incremental basis, with transitional arrangements likely to be put in place over time.
5.7.1 Table 5.2 describes the shortlisted options and summarises the distributional impacts of each:
| Option | Description | Impact | ||
|---|---|---|---|---|
| Distance Based Options | 1 | 'Best Fit' - Variable rate per lane metre per mile |
A power function was plotted on that relationship to show the best fit with the observed data. The function uses current published fares to increase previously 'low' fares and decrease previously 'high' fares. |
there would be fares changes in the range of +59% to -34% or +£74 to -£91 in absolute terms the biggest absolute reductions would be Scrabster-Stromness and Oban-Colonsay. The biggest absolute increases would be Uig-Tarbert-Lochmaddy and Lerwick-Kirkwall. |
| 2 | Fixed Charge (assumed at £25) plus constant rate per lane metre per mile |
The fixed element could be adjusted to change balance. |
There would be fares changes in the range of +124% to -63%, or +£620 to -£108 in absolute terms The biggest absolute reductions would be Scrabster-Stromness and Berneray-Leverburgh. The biggest absolute increases would be Kirkwall-Aberdeen and Lerwick-Aberdeen where fares would more than double. |
|
| 3 | Fixed Charge (assumed at £50) plus rate per lane metre per mile based on distance threshold |
When route mileage >50 miles, reduce the rate per mile by 50% for the additional miles over 50, i.e. £50 + 0.5 x £X per lane metre per mile. |
There would be fares changes in the range of +130% to -50%, or +£158 to -£128 in absolute terms The biggest absolute reductions would be Scrabster-Stromness and Berneray-Leverburgh. The biggest absolute increases would be Kirkwall-Aberdeen and Lerwick-Aberdeen. |
|
| 4 | Constant Rate per lane metre per mile |
This approach would produce very large fares reductions for shorter trips and big fares increases for longer trips. |
There would be fares changes in the range of +165% to -90%, or +£827 to -£126 in absolute terms The biggest absolute reductions would be Scrabster-Stromness and Berneray-Leverburgh. The biggest absolute increases would be Kirkwall-Aberdeen and Lerwick-Aberdeen. |
|
| 5 | Constant Rate per lane metre per mile within distance band |
Distance bands in miles: 0-5, 5-10, 10-20, 20-40, 40-100 and >100 The rate would decrease with distance, e.g.
|
There would be fares changes in the range of +100% to -35%, or +£64 to -£101 in absolute terms The biggest absolute reductions would be Scrabster-Stromness and Oban-Colonsay. The biggest absolute increases would be Oban-Castlebay/Lochboisdale, Uig- Tarbert/Lochmaddy and Tobermory-Kilchoan. |
|
| Flat Fare Options | 6 | Flat Fare per lane metre |
A flat fare per lane metre for all routes across the network.
Extreme scenario. All short routes would see very large fare increases. All long routes would see very large fare reductions. |
There would be fares changes in the range of +420% to -65%, or +£95 to -£322 in absolute terms All short routes would see very large fares increases. All long routes would see very large fares reductions. |
| 7 | Flat Fare per lane metre within distance band |
|
There would be fares changes in the range of +95% to -45%, or +£153 to -£92 in absolute terms The biggest absolute reductions would be Scrabster-Stromness and Oban-Colonsay. The biggest absolute increases would be Lerwick-Kirkwall and Kirkwall-Aberdeen. |
|
5.7.2 In the pages which follow, for each of the 7 fares options, there are two charts which are shown for each route:
- the fare per CV based on published fares 2012-13 and the average vehicle length (blue line), in order of route distance (short to long)
- the fare per CV based on the fares system under consideration (red line)
- the absolute difference in £ between the two (test minus published, so a positive number indicates a fares increase) (yellow bars)
- the % difference between published fares and the test (black diamonds)
Option 1: Best Fit Function - Variable Rate per Lane Metre per Mile
- this approach explores the relationship between rate per lane metre per mile and distance. It irons out the anomalies seen in the published fares in a consistent way - previously 'low' fares are increased and previously 'high' fares will come down - the red line does not show a continuous increase with route distance though as the fare per CV varies depending on the average vehicle length on the route.
- there would be fares changes in the range of +59% (+£13) to -34% (-£58) or +£71 to -£91 in absolute terms.
- the biggest absolute reductions would be Scrabster-Stromness and Oban-Colonsay.
- the biggest absolute increases would be Uig-Tarbert-Lochmaddy and Lerwick-Kirkwall.
Option 2: Fixed Charge (assumed at £25) plus constant rate per lane metre per mile
- this approach would see fares reductions for shorter trips and big fares increases for longer trips - this balance could be adjusted by increasing the fixed cost element from the £25 used here.
- there would be fares changes in the range of +124% (+£620) to -64% (£108) or +£620 to -£108 in absolute terms.
- the biggest absolute reductions would be Scrabster-Stromness and Berneray-Leverburgh.
- the biggest absolute increases would be Kirkwall-Aberdeen and Lerwick-Aberdeen where fares would more than double.
Option 3: Fixed Charge (assumed at £50) plus rate per lane metre per mile based on distance threshold (50% reduction when miles >50)
- increasing the fixed element and reducing the £/mile rates over 50 miles by 50% brings down costs for longer routes compared to Option 2 - overall there is a much better match with the scale of current fares compared to Option 2.
- there would be fares changes in the range of +130% (+£29) to -50% (-£87) or +£158 to -£128 in absolute terms.
- the biggest absolute reductions would be Scrabster-Stromness and Berneray-Leverburgh.
- the biggest absolute increases would be Kirkwall-Aberdeen and Lerwick-Aberdeen.
- the fixed element, rates and banding of £/mile discounts could be further adjusted to reach an optimal position.
Option 4: Constant Rate per lane metre per mile
- this approach is based purely on route distance and would produce very large fares reductions for shorter trips and big fares increases for longer trips.
- there would be fares changes in the range of +165% (+£827) to -90% (-£20 to -£69) or +£827 to -£126 in absolute terms.
- the biggest absolute reductions would be Scrabster-Stromness and Berneray-Leverburgh.
- the biggest absolute increases would be Kirkwall-Aberdeen and Lerwick-Aberdeen.
Option 5: Constant Rate per lane metre per mile within distance band
- the £/mile paid would vary widely by the six distance bands defined here - the same rate would be charged for any route distance within the same distance band and it would decrease with distance.
- the main drawback of this approach is that artificial steps are created when moving between distance bands - this could potentially be adjusted out though.
- there would be fares changes in the range of +100% (+£56) to -35% (-£33) or +£64 to -£101 in absolute terms.
- the biggest absolute reductions would be Scrabster-Stromness and Oban-Colonsay.
- the biggest absolute increases would be Oban-Castlebay/Lochboisdale, Uig- Tarbert/Lochmaddy and Tobermory-Kilchoan.
Option 6: Flat Fare per lane metre
- a flat fare per lane metre for all routes across the network is an extreme scenario, given that route distances range from 0.5 to 221 miles.
- there would be fares changes in the range of +420% / +£95 (short routes) to -65% / -£322 (long routes) or +£95 to -£322 in absolute terms.
- all short routes would see very large fares increases.
- all long routes would see very large fares reductions.
Option 7: Flat Fare per lane metre within distance band
- the fare paid would vary widely by distance band (from £5 to £35 per lane-metre depending on distance band).
- again major steps are created between distance bands and this is more extreme where there is a flat fare within each distance band.
- there would be fares changes in the range of +95% (+£22) to -45% (-£34) or +£153 to -£92 in absolute terms.
- the biggest absolute reductions would be Scrabster-Stromness and Oban-Colonsay.
- the biggest absolute increases would be Lerwick-Kirkwall and Kirkwall-Aberdeen.
5.8 Surcharges, Discounts and Policy Questions
5.8.1 The next step in the process is to consider whether there should be any surcharges, discounts and policy decisions which could impact on the implementation of the fares policy.
Surcharges
5.8.2 Surcharges to ferry fares are typically applied to account for occasions where the components of the standard fare do not reflect the cost of carriage. There are various examples of the basis for surcharges, including:
- where a vehicle exceeds the width of a standard lane on the car deck (typically 2.3 or 2.6 metres but this varies depending on the ferry);
- where the weight of a vehicle exceeds a standard weight definition;
- where the height of a vehicle prevents deployment of the mezzanine decks;
- drop trailer handling charges; and
- time of day / day of week, where the available lane meterage on a ferry is in high demand and the standard fare does not reflect the demand, creating a need for peak pricing.
Width Based Surcharges
5.8.3 At present, the situation in Scotland, and with most tendered operators, is that the main form of surcharges is for excess width, with vehicles wider than the typical car deck lane being charged a surcharge / excess fare. This is a perfectly logical approach and relates to the argument that the lane metres on the car deck are the scarcest commodity on a ferry, and thus anything which has a 'footprint' wider than a standard lane should pay a surcharge for consuming additional space which cannot then be sold to another user.
Weight Related Surcharges
5.8.4 Except on the smallest ferries which have deadweight constraints, there are not currently any weight related surcharges in Scotland. In particular, there are no such charges on CHFS or routes to the Northern Isles. Whilst heavy payloads may require increased fuel to propel the vessel, the overall effect is marginal. Heavy vehicles are also not consuming any more of the scarce commodity on the car deck (ie lane metres) than lightly loaded or empty vehicles.
5.8.5 The other issue with applying weight related surcharges is that all vehicles would have to be weighed at the port. This would require significant investment in weighbridges and portside staff and would also slow down the turnaround on the vessel.
Height Related Surcharges
5.8.6 On certain vessels within the CHFS network, for example the MV Isle of Lewis, the presence of high sided vehicles (including standard CVs) can prevent the deployment of the mezzanine decks and thus reduce overall lane meterage available. Whilst it could be argued that such vehicles are consuming scarce lane metres, one could argue that this is a characteristic of the vessels and that freight firms should not be penalised for this.
5.8.7 Height related surcharges are highly rare, with one of the only examples discovered in the course of our research being in the Åland Islands.
Drop Trailer Handling Fees
5.8.8 The only Transport Scotland subsidised routes which operate an operator administered drop trailer service are the overnight freight service between Stornoway - Ullapool and routes to the Northern Isles.
5.8.9 The lane metre charge for carrying drop trailers on the Stornoway - Ullapool service is identical to that for a standard CV, albeit there is a 10% discount in place for using the overnight freight service (this is a demand management measure and is applied whether a vehicle is accompanied or otherwise). There is therefore no charge for handling drop trailers, and there is additional cost to the ferry operator.
5.8.10 On the Northern Isles, it is our understanding that the tariff includes the cost of handling drop trailers, but this is not explicitly specified in the fares literature. Overall, it appears that the drop trailer fare is around £1 per £/LM/mile more expensive than the self-propelled fare[7], which is unlikely to cover the overall cost of the drop trailer service.
5.8.11 One potential surcharge which Transport Scotland may therefore wish to consider is a handling fee for drop trailers. The fee would need to be set in such a way that it does not remove the advantage to operators from having a drop trailer option but, at the same time, allows the operator to recover the cost of running a drop trailer operation. This is a surcharge successfully employed by Marine Atlantic in Canada, a government owned ferry company which operates a similar network (in terms of the number of routes and their length) to Serco NorthLink.
Peak / Off Peak Pricing
5.8.12 Peak pricing is effectively a surcharge for taking up car deck space on the ferry on high utilisation sailings, be they at a specific time of day or day of the week. Peak pricing is currently only used on limited routes in Scotland, including Ardrossan-Brodick and Oban-Craignure during the summer months and on a seasonal basis (low / mid / high) on NorthLink services.
5.8.13 The 10% discount for using the overnight freight service on the Stornoway - Ullapool service is an example of off-peak pricing. In this case there is an incentive offered to use the less utilised service.
5.8.14 More widespread use of peak / off-peak pricing by sailing / season is an option which Transport Scotland and operators may wish to consider further. Indeed, it is a consideration in the Ferries Plan.
5.8.15 However, it is perhaps only most justifiable on routes / services where there is a demonstrated capacity problem and this may occur more frequently with the introduction of RET across the network. The level of utilisation should be reviewed regularly and be discussed with the operator.
5.8.16 Any further moves to pricing flexibility would have to be reflected in the contract offered to the ferry operator and be compliant with State Aid rules.
Bunker Adjustment Factor (BAF)
5.8.17 The final surcharge which Transport Scotland may wish to consider is a Bunker Adjustment Factor (BAF), or a fuel surcharge. At present, on Transport Scotland tendered services, the risk lies either with the operator or Transport Scotland. Freight customers are protected from this risk except in the extent to which it is manifested in the Consumer Prices Index, which is the inflation index used to annually uplift fares.
5.8.18 The inclusion of a BAF is likely to be deeply unpopular and, with no history of this on Scottish ferries, it is likely to be unacceptable to the public.
Discounts
5.8.19 The review of current practice for both CVs and non-CVs identified a wide variety of discounts on the CHFS network (although less so on the Northern Isles). We are unclear as to the original rationale for these discounts, although this appears to have included the provision of support for local hauliers; local sectors or industries; volume based discounts; demand management etc,
5.8.20 Discounts on the CHFS network equate to around £1 million annually. If route or commodity specific discounts were removed and this pot spread equally over the network, CV fares could be reduced by around 5% across all routes.
5.8.21 There are four main types of discount offered on one or both of the CHFS and Northern Isles routes, namely:
- Volume discounts - e.g. the Traders Rebate Scheme (a scheme offering all commercial vehicle operators a rebate based on their volume of carryings on a particular route on the Clyde & Hebrides Ferry network);
- Route discounts - e.g. the 10% discount for using the overnight freight service between Stornoway and Ullapool;
- Commodity discounts - e.g. free or discounted returns for hay lorries, vivier trailers etc.; and
- Empty return discounts - e.g. a reduced fare for moving an empty unit, this issue is complicated by having to define an 'empty' vehicle (for example, is a livestock trailer returning to an island with a small load of fencing an empty vehicle or not?).
5.8.22 The application of discounts is ultimately a policy matter for Transport Scotland, as they may be intended to achieve a wider set of objectives than simply lowering the cost of travel. Any review of discounts should be objective led - and there should be a clear and stated rationale for the purpose of the discount.
Policy Questions
5.8.23 There are a number of wider questions Transport Scotland may wish to consider in developing any future freight policy. These are again applicable across all of the proposed options.
Definition of a Commercial Vehicle
5.8.24 Establishing the precise definition of a commercial vehicle has always been a challenge. On CalMac routes, the present definition states that all vehicles greater than 5 metres in length on non-RET routes and 6 metres in length on RET routes are CVs. The exceptions to this are trailers and agricultural tractors, which have their own specific rate, the basis for which is unclear. On NorthLink, all CVs regardless of length are charged commercial rates
5.8.25 The existence of a length based threshold creates an incentive at the margin to purchase (often bespoke) vehicles which fit under the designated length threshold, allowing what is effectively commercial traffic to be carried at the car rate, something which can be viewed as inequitable.
5.8.26 One potential solution to this is to define a CV as anything other than a car or coach and levy a lane metre based charge on this basis. Whilst there would be a challenge of people using modified cars to carry commercial goods, the definition of a 'CV as a CV' is inherently fair.
Redefinition of CV Length
5.8.27 As part of the roll-out of RET, Transport Scotland has mandated that the threshold at which a vehicle becomes a commercial vehicle is redefined from 5m to 6m. The early evidence suggests that this change has markedly reduced CV carryings / revenue where introduced on the CHFS network and has therefore increased the subsidy required.
5.8.28 This issue lies outwith the immediate scope of this study, but is another quirk in the fares system which could be considered going forward.
Paying for Improvements
5.8.29 Another issue worthy of further consideration is the concept of improvements on a route (eg a higher frequency, drop trailer capability etc) being reflected through the fares charged to end-users. This concept has been discussed in relation to the rail network on a number of occasions and has typically been rejected on the grounds of public acceptability. It is therefore unlikely to be acceptable in the context of ferry services. However, it should be considered if only to ensure that there is a clear rationale for ruling it out.
Parcel Rates
5.8.30 In undertaking a fundamental review of freight fares policy, it is important to strategically review all elements of the freight service and consider whether they remain fit for purpose going forward.
5.8.31 In particular, the rationale for operating a loose parcel service on the Firth of Clyde and on the Sconser - Raasay route should be considered going forward. Should these services be continued, it is likely that the historic flat weight based charges would remain in place.
5.8.32 The Mallaig - Small Isles route will always remain something of an exception until the commitment in the Ferries Plan to operate a dedicated freight service is realised. This is in part due to the lack of onwards road infrastructure on these islands and the very low population levels.
5.9 The Consultation Process
5.9.1 The above analysis was consolidated into an Options Paper with a series of consultation questions, which was approved by Transport Scotland and issued to consultees on Friday 28th November 2014. Consultees had an eleven week period to respond to the consultation by Friday 6th February 2015.
5.9.2 A total of 24 organisations were invited to participate in the consultation of which 15 submitted a formal response. The table below provides a detailed list of these organisations:
| Organisation Invited to Respond | Submitted a Formal Response |
|---|---|
| Argyll & Bute Council; | √ |
| CalMac Ferries Ltd; | √ |
| Comhairle nan Eilean Siar; | √ |
| Co-operative Group; | |
| Federation of Small Businesses; | |
| Freight Transport Association; | √ |
| Gleaner Fuels; | √ |
| Highland Council; | |
| Highlands & Islands Enterprise; | √ |
| HITRANS; | √ |
| Jewson Limited; | |
| Mid-Argyll Chamber of Commerce; | |
| National Farmers' Union Scotland; | √ |
| North Ayrshire Council; | √ |
| Orkney Islands Council; | √ |
| Outer Hebrides Commerce Group; | |
| Road Haulage Association; | √ |
| Scottish Shellfish Marketing Group; | |
| Seafood Shetland; | √ |
| Serco NorthLink; | √ |
| Shetland Fish Producers' Association; | |
| Shetland Islands Council; | √ |
| Strathclyde Partnership for Transport; and | √ |
| Visit Arran. |
5.9.3 In the interests of transparency, copies of finalised consultation responses are provided online on the Transport Scotland website (where permission to publish was provided by the consultee).
5.9.4 In addition to the main consultation exercise, a haulier briefing session, arranged by the Road Haulage Association and Transport Scotland, was held on Wednesday 14th January. This session allowed hauliers to present their views on the options and ask questions. However, at this stage in the process, only the consultation views of organisational stakeholders and industry bodies are included in the research, so as to ensure the research reflects industry-wide views rather than individual opinions.
5.9.5 The next two chapters present the feedback of consultees on the in-principle options (Chapter 6) and the wider surcharges, discounts and policy questions (Chapter 7).