Research and Analysis of Options for Ferry Freight Fares

6 Fares Options and Consultation Responses

6.1 Overview

6.1.1 This section sets out the consultation responses to the seven options identified as the potential basis of future fare setting.

6.1.2 It should be noted that consultees were offered either face-to-face consultation (although these were restricted in number), telephone consultation or the opportunity to respond independently in writing.

6.1.3 Different consultees approached the consultation in different ways. Some stakeholders considered each option in turn, whilst others focussed on an identified preferred option. Similarly, some stakeholders preferred to take a relatively local view whilst others took a wider 'network' view. This should be borne in mind when reviewing the findings.

6.1.4 Note that if a consultee is not specifically referenced with regard to a fares option / consultation question, it can be assumed that it was in broad agreement with the consensus reported below.

6.1.5 The views reported here are those of the consultees and not necessarily those of Transport Scotland.

6.2 General Comments

6.2.1 A number of stakeholders provided a series of general comments related to the options before considering the options themselves. These comments are set out below.

CalMac Ferries Limited

6.2.2 CalMac explained that the decision not to consider options linking fares to economic performance is perhaps a weakness in the overall research (this approach was not taken forward by Transport Scotland as it was thought that it may cause inconsistencies, which is counter to the objectives of the research). Whilst CalMac endorses the principle of consistency, it also explained that a network-wide solution could impact negatively on the economic sustainability of one or more islands. It therefore foresees the need to consider 'special cases' in the analysis.

6.2.3 The main issue for CalMac overall is that CV carryings across the network are in decline. A fares system which would encourage CV traffic which has switched to bulk and coaster back onto the ferry would be beneficial from a revenue perspective.

Serco NorthLink

6.2.4 Serco NorthLink Ferries operates in a commercially competitive market across the Pentland Firth. This research is not seen to be representative of the commercial application of fares.

6.2.5 Trunking and associated costs have reduced the attractiveness of the Pentland Firth Route in recent years and put increased pressure on the Aberdeen to Kirkwall service. .

Argyll & Bute Council

6.2.6 Argyll & Bute Council explained that for any fares system to be publicly acceptable, there would need to be minimal departure from current fares, albeit ensuring greater consistency.

6.2.7 The Council also explained that there is a need amongst stakeholders to take a network wide view. It explained that the Council would not support any options which result in a significant step change for any routes (eg Option 2 for the Northern Isles) even if this was to the benefit of the Argyll & Bute routes.

Comhairle nan Eilean Siar

6.2.8 With regard to the research process adopted by Transport Scotland and the Working Group, the Comhairle is comfortable with the principle of identifying a long-list of options and the development of a short-list of options for further appraisal. It is however felt that the further appraisal of the remaining options must be supported by a more detailed analysis of the economic and social impacts of the respective fares structures prior to the identification of a "preferred option".

6.2.9 Whilst the Comhairle very much recognise the increasingly challenging financial climate that the public sector is expected to operate in, it noted that there is no doubt that the outcomes of the Ferry Freight Fares Review will have significant potential for contributing to the economies and sustainability of the respective island communities.

6.2.10 In addition, given the recognition of the importance of these ferry services to the island communities and, hence, to the wider nation, and whilst recognising the increased levels of subsidy provided and investment undertaken by Scottish Ministers over the last 5-10 years, the Comhairle does not agree with the premise that any new overarching freight fares policy and structure should be "cost-neutral" or constrained within current subsidy levels.

6.2.11 The Comhairle noted that implementation of a revised fares structure should be considered carefully. It explained that the need for a period of transition is obvious and, given the potential impacts on certain sectors, including hauliers and their customers, it feels that this period must be sufficient to enable effective business planning and change management within those sectors.

6.2.12 The Comhairle noted that, given the need for a more detailed analysis and economic impact assessment of any out-turn shortlist of options, it is not, at this stage, comfortable in identifying a preferred option. Nonetheless, the Comhairle has provided comments on some individual options. In particular, the Comhairle is generally comfortable with the principle that commercial vehicle fares should in some way reflect the length of the crossing.

North Ayrshire Council

6.2.13 North Ayrshire Council acknowledged that fares have typically been set on the basis of historical arrangements, with a number of inconsistencies across the network. The Council explained that, for the Firth of Clyde at least, the current fares system does appear to work and care must be taken to not to overly disrupt that balance.

6.2.14 On that basis, the Council supports the fares option which minimises the range of absolute fare changes. It explained that island economies are fragile and large increases, even with transitional arrangements, could be detrimental.

6.2.15 The Council explained that there would be some merit in tying fares to the economic performance of the islands being served, although it was again explained that Transport Scotland is not in favour of this approach on the basis of consistency.

6.2.16 Overall, the Council believes that the fares system should support the specific needs of individual islands rather than being based on a single network-wide approach.

Orkney Islands Council

6.2.17 Orkney Islands Council observed that, across all options, the Scrabster - Stromness route is an outlier and is more expensive relative to other publicly specified routes. It noted that there is logic in reaching a common approach and they also noted the potential impact on Pentland Ferries. However, the Council explained that it did not follow that prices should remain high to protect another operator.

Shetland Islands Council and ZetTrans

6.2.18 Shetland Islands Council noted that Transport Scotland should consider the characteristics or dynamics of the routes as well as distance, finding an appropriate solution from a user viewpoint. The Transport Scotland's Routes & Services Methodology (RSM) looks at route use characteristics to establish model service levels and the Council suggests that this principle could be extended to include the consideration of fares on different routes.

HITRANS

6.2.19 HITRANS welcome the principle of achieving a consistent, transparent and simple approach to fare setting for freight. It noted that the information collated by Transport Scotland for this study has clearly illustrated the lack of consistency or rationale underpinning the existing fare setting across both the CHFS and Northern Isles contracts.

6.2.20 HITRANS noted that, following the selection of a preferred option, further work will be required to develop the agreed formula for fares and the out-turn fares which would stem from this. It explained that there would also be a need to consider the impacts at the island level. This will need to include careful consideration of the economic impact that could result in implementing any change in fares at a local level. HITRANS noted that this focus should capture impacts across sectors as well as by haulier and route. It further explained that industries in island and peninsular communities are trading in difficult conditions and the impact of changes to ferry fares can be far reaching.

Highlands and Islands Enterprise

6.2.21 As an overall comment, HIE welcomes the aims of developing a fairer and more consistent approach to setting freight fares across Scotland. However, it noted that much greater attention needs to be paid to the economic outcomes sought from the Review, and the potential economic impacts of different options (including potential changes to discount schemes and the definition of CVs).

6.2.22 HIE noted that currently no detailed consideration has been given to economic outcomes beyond a desire to assess whether different options are broadly positive or negative. Given that there are fundamental questions not just about fare structures, but regarding how CVs are defined and charged, and discounts for specific commodities or economic activities, HIE noted that decisions made following this research have the potential to shape the future of island economies. It explained that it is not just a question of whether each option produces an overall positive or negative economic outcome, but how it will influence patterns of economic activity, resulting in different outcomes for different businesses, sectors and communities.

6.2.23 HIE pointed out that significantly more detailed economic appraisal is therefore required of the various options and questions posed in the research study. In its response, HIE has highlighted some of the key issues which require further analysis before sound, evidence-based decisions can be made.

6.2.24 HIE also suggested that Transport Scotland should proactively seek advice from the State Aid Unit within Scottish Government in relation to the legality of different fares systems and discounts such as the TRS and commodity related discounts.

6.2.25 In terms of the fare options, HIE noted the importance of appreciating that, with any of the options taken forward, some of the impacts will take time to bed in and Transport Scotland needs to both allow for this bedding in period and ensure effective monitoring and evaluation of the impacts. It explained that the approach being taken here is more scientific than at any time in the past and there is a need to avoid the adverse impacts of short-term changes.

6.2.26 HIE explained that, unlike passengers, economic activity and freight demand do not always respond quickly to price changes. In particular it will take longer (potentially 5-10 years) for primary / manufacturing sectors to fully respond to new opportunities created by a reduction in transport costs, although conversely the effects of any increase in transport costs may be visible very quickly if it threatens the viability of certain economic activities in some locations. The implication of this is that with any reform of freight fares which creates a mixture of 'winners' and 'losers' compared to the current position, the negative impacts could be much more immediate and visible than the positive impacts - even if overall the net long-term position is a positive one. HIE noted that this was arguably the experience with the introduction and subsequent withdrawal of RET for commercial vehicles in Coll, Tiree and the Western Isles.

6.2.27 HIE noted that it has a wider geographic remit than most consultees in the process and explained that islands with long crossings are already at a significant disadvantage in terms of freight costs. When added to relatively long overland routes to the Scottish Central Belt, the overall distance to market makes it difficult for existing businesses in these islands to compete with mainland businesses, and difficult to attract new businesses and economic activities. However, at the other end of the spectrum, businesses in relatively accessible islands such as Bute also struggle to compete with those on the mainland because of the additional freight transport costs, even if these are significantly less in absolute terms than for the more distant islands. HIE noted that, as this research study aims to produce a fairer and more equitable basis for ferry freight fares, it should take account of the general disadvantage faced by island businesses and communities due to the additional costs of transporting freight to and from the Scottish mainland.

6.2.28 The organisation explained that there is therefore a need to consider the wider question of whether the overall level of subsidy for commercial vehicles should increase with a view to reducing disadvantage and stimulating economic development in the islands. It explained that whilst the case for reducing freight fares is probably greatest on the longer routes, this should not be at the expense of communities with shorter routes where any increase in fares would add to the existing disadvantage relative to mainland communities.

6.2.29 In addition, HIE cautioned that the impact of fare changes will not be universally common across all islands, a point clearly evidenced by the differing impact of RET on individual islands. HIE again stressed the need to ensure that the implications of any preferred options are properly evaluated and consulted upon before the policy is announced and implemented.

National Farmers' Union Scotland

6.2.30 The National Farmers' Union Scotland (NFUS) believes that there is not a single option which fits all of the islands. It has provided feedback at different geographic levels.

6.2.31 NFUS noted that members on the Arran routes considered that as RET for non-CVs has only recently been introduced to the island, large changes in freight fares would be unwise at present. Members on the Shetland Islands were opposed to options which were based on distance and would negatively affect the Aberdeen - Lerwick route. They suggest that, if a distance based charge was to be applied, a cap should be placed on the scale of the potential fare increases.

6.2.32 The organisation has requested more generally that Transport Scotland consider the extension of RET to commercial vehicles.

Seafood Shetland

6.2.33 Seafood Shetland noted that it is clear that the range of ferry services across Scotland is numerous and diverse with, perhaps, sound reasoning as to why the current fare structures exist in their present format. It is considered that the creation of one system to be implemented country-wide is likely to be impossible to achieve, unlikely to find favour in all areas or be seen to be fair.

6.2.34 Specifically, it noted that while any future fare structure is based on the length of the route alone, it will be challenging to devise a model which is seen to be considered 'fair' for Shetland, given the length of the mainland-Shetland route, relative to all the crossings which form part of the Scottish ferry network.

6.2.35 It further noted that Shetland is already disadvantaged by distance, both in terms of time and mileage and great consideration should be given to assisting island communities to overcome current and future barriers to market. Seafood Shetland noted that any proposal to charge greater fares should, therefore be resisted.

6.2.36 Seafood Shetland explained that serious consideration should be given to the potential for unintentional consequences and outcomes following the Review. It noted that a change in fare structure may advantage certain communities over others, leading to market distortions in certain sectors: aquaculture being an example. This could, potentially, have a bearing on future operational and investment decision-making.

6.2.37 Finally, Seafood Shetland noted that greater analysis should be made of the areas served by the ferry network, accounting for their unique circumstances to ensure that all current needs, future prospects and aspirations are fully understood and acknowledged.

Gleaner Oils

6.2.38 Gleaner Oils indicated that options not constrained by distance bands provided an unacceptable step change in fares and too large a departure from the current norm. It noted that such options (ie Options 5b, 5d and 6a) should be excluded from further consideration.

6.3 Comments on Option 1: Best Fit Function - Variable Rate per Lane Metre per Mile

CHFS & Northern Isles Operators

6.3.1 Serco NorthLink noted that this option creates a consistent approach to fares setting across Scotland, whilst there is no major departure from current fares.

6.3.2 However, it did note that the best-fit option has no clear underpinning rationale, which would perhaps make the option difficult to justify to users.

Local Authority, Regional Transport Partnership (RTP) and Other Public Bodies

6.3.3 Whilst seeing a number of other options as potentially acceptable, Argyll & Bute Council noted that it regarded the best fit function as the most appropriate fare system going forward. It explained that this option offers consistency across the network and relatively small fare changes vis a vis the current situation. SPT also supports this option in principle.

6.3.4 By way of contrast, Comhairle nan Eilean Siar does not support this option, as it felt that it would only serve to uphold the current fares structure and its anomalies and inconsistencies.

6.3.5 Orkney Islands Council explained that this option is worthy of further consideration because it maintains a link between cost and distance and minimises the overall change in fares. The Council also noted that whilst there was a need for a relationship between cost and distance, there should only be a limited relationship to operating costs given the publicly funded nature of the service.

6.3.6 Shetland Islands Council and ZetTrans submitted a joint response and, in the interests of brevity, the findings are reported as the Council's position henceforth. The Council recommends further consideration of this fare option as it takes account of the principle of charging less per mile as route distance increases, a key issue for the Shetland Islands given the distance from the mainland.

6.3.7 HITRANS noted that this option could reasonably be used as a consistent basis for tidying up the current anomalies in the fares system. However, it expressed concern at the lack of a rationale underpinning the current shape and position of the best-fit line, noting that the absence of any evidence for this may undermine the public credibility of this option.

6.3.8 HIE can see the merit of bringing all fares onto a curve which broadly follows the current pattern. It noted that it is a simple approach which limits the extent of the change on any given island and indeed network wide. However, HIE echoed the point of others that there is a lack of a rationale for the shape of the best-fit curve in the first place - ie why is it the shape it is? Should the curve be moved down through more subsidy and should any overall fares reduction be concentrated on longer routes or more evenly distributed across all routes? It noted that there is no clear (economic or other) rationale for this at present and additional consideration would need to be given to this before any implementation, with particular regard to how the impacts would transfer through to the island economies.

Industry Bodies

6.3.9 The Road Haulage Association (RHA) welcomed the simplicity of this option and felt that the changes in fares are minimised. Its view is that it is the most appropriate of the seven options. This view was largely echoed by the Freight Transport Association (FTA).

6.3.10 Gleaner Oils noted that this option would be the most pragmatic fares system going forward. It explained that this fares function closely represents the current and well understood position.

6.4 Comments on Option 2: Fixed Charge plus constant rate per lane metre per mile

CHFS & Northern Isles Operators

6.4.1 Serco NorthLink does not support this option as it has a disproportionately negative impact on the longer routes which it offers. From a demand management point of view, it also noted that it could destabilise the market and trigger radical movements in route choices to the Orkney Islands.

6.4.2 Serco NorthLink also explained that it cannot see a clear rationale for a fixed charge being included in the fares methodology particularly in a nationwide approach where the fixed costs of providing services will vary. It sees this option as more complicated than applying a simple route-per-mile formula.

Local Authority, Regional Transport Partnership (RTP) and Other Public Bodies

6.4.3 Orkney Islands Council explained that the principle of a fixed element is sound as it acknowledges that there is a fixed cost to ferry provision regardless of distance. However, the Council does not consider this option to be appropriate as it has a disproportionately negative impact on the longer routes.

6.4.4 Shetland Islands Council does not support further consideration of this option given the substantially disproportionate impact on the Aberdeen-Lerwick route. The Council stressed that, if this option were to be considered further, it would need to be supported by analysis of the potential impact on local producers and exporters, the economic impact on Shetland generally in terms of the increased cost of importing freight, and because of the sectors that are strategic to Scotland such as fishing and aquaculture, to the national impact.

6.4.5 SPT noted that this option would be a possibility for services in its area but, at the same time, acknowledges the significantly negative effect that it would have on long routes.

6.4.6 HITRANS would not necessarily support this option given the particularly negative impact on long routes, particularly those to the Orkney and Shetland Islands.

6.4.7 HIE noted that the principle underpinning this option is sound in that it is consistent across all routes. However, it explained that the magnitude of the impact on the Northern Isles would make it a publicly unacceptable option and a difficult one for HIE to support. This option further emphasises its point about the comparative disadvantage already faced by longer routes - the impact of changes of this magnitude would be hugely detrimental to the island economies.

Industry Bodies

6.4.8 The RHA and FTA believe that the application of a fixed element to the fare is a sound principle. However, both organisations do not feel this option is appropriate given the significant increase in fares for the longer routes.

6.5 Comments on Option 3: Fixed Charge plus rate per lane metre per mile based on distance threshold (50% reduction when miles >50)

CHFS & Northern Isles Operators

6.5.1 Overall, this is CalMac's favoured option which it felt that, with refinement, could work as it minimises the scale of fare changes but, at the same time, retains a clear relationship between fares and distance travelled. Its only concern is related to community sustainability on any islands negatively affected.

6.5.2 Serco NorthLink noted route dynamics and inter island traffic placement renders it more complicated than first assumption. This option could be preferable to a fixed charge plus constant £/mile as it takes account of distance (the key variable). However, it does not support further consideration of this option as the company does not see the rationale behind a fixed cost element in a nationwide fare structure.

Local Authority, Regional Transport Partnership (RTP) and Other Public Bodies

6.5.3 Orkney Islands Council noted that this option is a more appropriate version of Option 2 (i.e. fixed charge (£25) plus constant rate per lane metre per mile), as the distance bands effectively prevent the large step-changes for long-routes. The Council explained that this is a similar model to that used for pricing its Inner and Outer Isles services. The Council believes that this option should be considered in more detail.

6.5.4 Shetland Islands Council supports further consideration of this option as it moves towards the principle of equality, albeit the Council explained that it falls far short of absolute equality across the network. The banding would also have to be carefully considered, as the Aberdeen - Lerwick route in particular is a clear outlier in terms of distance and may require its own distance band.

6.5.5 HITRANS support this option in principle but noted that there would need to be a series of iterations to determine the precise formula under this option.

6.5.6 Like HITRANS, HIE explained that this could be a viable option but noted that further work would be required to refine the mechanics of the formula, particularly for the longest routes (to ensure that fares do not increase overall for the longer routes). It also noted that care must be taken when imposing a boundary that it does not unfairly disadvantage one community over another.

Industry Bodies

6.5.7 Both the RHA and FTA support this option in principle. They feel that it retains some of the benefits of Option 2 (i.e. fixed charge (£25) plus constant rate per lane metre per mile) with the application of a distance band lessening the extent of the negative impact on longer routes. The FTA further noted that banded approaches of this nature are already prominent on passenger transport and are thus well understood. In addition, it explained that there are parallels with banded rates for parcel and network pallet carriers, which are familiar to the CV sector.

NFUS noted that members from Argyll and the Islands supported this option in principle as it was seen to be relatively fair across all members.

6.6 Comments on Option 4: Constant Rate per lane metre per mile

CHFS & Northern Isles Operators

6.6.1 Serco NorthLink explained this option is rational and easy to understand but noted the outcome is wrong, in that there would be substantial price increases for longer routes and a large price decrease for shorter routes

Local Authority, Regional Transport Partnership (RTP) and Other Public Bodies

6.6.2 Orkney Islands Council does not support this option given the disproportionately negative impact on the long routes, particularly given that it would make the short routes very cheap.

6.6.3 Shetland Islands Council does not support this option - the increase in fares on the Aberdeen - Lerwick route would be in the region of £800 / 400%, which is clearly unsustainable. Indeed, the Council pointed out that this example clearly sets out the impact of the differential in route distances across the network.

6.6.4 SPT noted that this option would be a possibility for services in its area but, at the same time, acknowledged the significantly negative effect that it could have on relatively longer routes.

6.6.5 HITRANS explained that this option is consistent and offers benefits for a number of routes. However, it also acknowledged the severe negative impacts on the longer routes and noted that a different solution would be required for these routes. However, it did acknowledge that there would be a significant revenue impact where there is a reduction on some routes and a different fares package adopted for routes where there would otherwise be a fares increase.

6.6.6 HIE explained that this option would offer benefits to some communities but the scale of the negative impacts on the longer-routes mean that HIE would not support it going forward.

Industry Bodies

6.6.7 Both the RHA and FTA noted that the scale of the negative impacts on longer routes means that this option should be rejected.

6.7 Comments on Option 5: Constant Rate per lane metre per mile within distance band

CHFS & Northern Isles Operators

6.7.1 Serco NorthLink noted that this option should be considered further. It explained that the charge being based on distance provides a clear rationale, whilst the application of distance bands addresses the substantial price hikes for long routes seen in non-banded options. It also noted that, whilst not as simple as some other options, the charging structure could be clearly communicated.

6.7.2 Serco NorthLink also noted that it is important to ensure that the bandings do not discriminate between islands or cause negative effects at the margin.

Local Authority, Regional Transport Partnership (RTP) and Other Public Bodies

6.7.3 Whilst not its preferred option, Argyll & Bute Council considered this option as being worthy of further consideration

6.7.4 Orkney Islands Council explained that this option is potentially viable in that it incorporated distance banding and would be acceptable from a local Orkney perspective. However, the Council did note that it supports the addition of a fixed element to the fare and see this as a weakness compared to Option 3 (i.e. fixed charge (£50) plus rate per lane metre per mile based on distance threshold).

6.7.5 Shetland Islands Council explained that this option should be explored in more detail, although it emphasised that the distance banding needs to consider the relative disadvantages that time and distance already present for the islands. The Council noted that for it to support this option, it would need to offer the Shetland Islands a lower £/mile than is currently modelled.

6.7.6 HITRANS would support this option in principle but it did caution over the potential controversy which would arise over grouping routes within distance bandings. However, HITRANS did explain that the option does appear intuitively sensible in that it reflects the different scale of operations on different routes.

6.7.7 In its response, HIE explained that this option does not offer any clear advantage over Option 5c (fixed charge plus distance banded £/mile). In addition, it noted that the more disaggregated distance bandings could have negative impacts at the margin on one community compared to another.

Industry Bodies

6.7.8 As with a number of public sector stakeholders, both the RHA and FTA support this option in principle, as it offers the transparency and simplicity of a constant rate per mile fare with the application of distance bands reducing the impact on longer routes.

6.7.9 NFUS noted that members from Argyll and the Islands supported this option in principle as it was seen to be relatively fair across all members.

6.8 Comments on Option 6: Flat Fare per lane metre

CHFS & Northern Isles Operators

6.8.1 Serco NorthLink acknowledged that this option is easy to understand and fair between all routes but it suggested that it should not be considered further as it does not reflect either distance or operating costs

Local Authority, Regional Transport Partnership (RTP) and Other Public Bodies

6.8.2 Comhairle nan Eilean Siar does not support this option. Similarly Orkney Islands Council explained that the diversity of the network makes this option unviable. This view was also echoed by HITRANS and HIE.

6.8.3 Shetland Islands Council recognises that this option is unrealistic as presented but believes that it should be further developed in the forthcoming Review to maintain the focus on fairness.

Industry Bodies

6.8.4 The RHA and FTA do not support this option given its negative impact on the shorter routes. They believe that such a fares system would increase the peripherality of these communities.

6.9 Comments on Option 7: Flat Fare per lane metre within distance band

CHFS & Northern Isles Operators

6.9.1 Serco NorthLink noted that this option is more practical than a network-wide flat fare as it takes into account distance and therefore works where routes are of a similar distance.

Local Authority, Regional Transport Partnership (RTP) and Other Public Bodies

6.9.2 Whilst not its preferred option, Argyll & Bute Council considered this option as being worthy of further consideration.

6.9.3 Comhairle nan Eilean Siar noted that the adoption of route length bands may facilitate an equitable and less complicated fare structure. In this respect, it regarded this option as the simplest approach, although it again explained the need for further research to understand the out-turn fares and the implications of these.

6.9.4 Orkney Islands Council noted that this option should be considered further as it addresses the network diversity issue which makes a straight flat fare unworkable. The Council explained that Aberdeen - Lerwick would need to sit in its own distance band given the length of the route, whilst also recognising that Orkney has two routes of very different lengths, which could affect route choice at the margin. Overall, the Council believes that this option could assist in allowing alignment between the Northern Isles and the wider CHFS network, although it also emphasised the need for care when defining the bandings.

6.9.5 Shetland Islands Council believed that this option is worthy of further consideration and addresses the affordability shortcoming of Option 6 (i.e. flat fare per lane metre). As with the Orkney response, Shetland Islands Council noted that the distance banding for the Aberdeen - Lerwick route should be given careful consideration given the length of the route compared to all others on the network.

6.9.6 HITRANS supports this option in principle but again raised the potential issues which would surround the definition of the distance bands. It noted that further work would be required on this to more fully understand the impacts.

6.9.7 HIE noted that this option is a simple concept which people will understand. It explained that given the distance of Lerwick (and Kirkwall) from Aberdeen, these routes should potentially have a distance band of their own, although it was acknowledged that this could introduce an element of inconsistency. HIE also noted that other refinements would probably be required to the bands and fares within these, and it noted that as with some of the other options, the setting of these could be contentious unless a clear logic can be established.

Industry Bodies

6.9.8 The RHA and FTA both support this option in principle although, like other stakeholders, they identified the sensitivity in defining the distance bandings.

6.9.9 NFUS noted that members from Argyll and the Islands supported this option in principle as it was seen to be relatively fair across all members.

6.10 Summary

6.10.1 Having undertaken the consultation exercise and reviewed the responses, the seven options have been further narrowed down.

Key Issues Emerging

6.10.2 There was a consensus view amongst all stakeholders that it is crucial to ensure the outcomes of the Review provide a freight fares policy which firmly supports the economic development and sustainability of the islands. HIE, amongst others, pointed out the general disadvantage that island companies (even those close to the mainland) face compared to mainland competitors. It was broadly agreed that the forthcoming Review should seek to lessen this disadvantage.

6.10.3 Building on the above point, the majority of consultees stressed the importance of further detailed analysis to identify the economic impact of whatever new fares system is chosen in terms of how the absolute and relative changes in fares will influence patterns of economic activity and outcomes for different businesses, sectors and communities.

6.10.4 Relevant local authorities also pointed out that State Aid advice will be required in handling the situation on the Scrabster - Stromness route. Whilst almost all options identify a fare reduction for this route, the practicalities of introducing such a reduction are challenging given the presence of a private sector operator on the Pentland Firth.

Options for Further Consideration

6.10.5 Several key themes emerged during the consultation which have assisted in identifying the options for further consideration:

  • it was widely agreed that fares should be linked to the distance of the crossing, with the application of one or more distance bandings to ensure that there are no disproportionate fare changes for given route lengths;
  • whilst one or more distance bandings are seen as desirable, there was a consensus view on the need for a pragmatic and fair approach to allocating routes to each banding, so as to ensure that there are no clear distortions at the margin;
  • the majority of consultees felt that there should be a fixed cost element to the fare (although there was not unanimous consensus on this, with Serco NorthLink not supporting it); and
  • there was a widely held view amongst the majority of consultees that at the Aberdeen - Lerwick route should be contained within its own distance band, given that it is longer by some margin than any other route.

6.10.6 In light of the above, the following options are rejected from further consideration, principally as a result of their large negative impact on one or more routes (caused by the absence of distance banding).

  • Option 2: Fixed Charge plus constant rate per lane metre per mile;
  • Option 4: Constant rate per lane metre per mile;
  • Option 6: Flat Fare per lane metre.

6.10.7 The following options were deemed as worthy of further consideration by consultees (although note again that there was not consensus on this):

  • Option 1: Best-Fit Function - Variable rare per lane metre per mile. At the 4th Working Group Meeting on 26th February 2015 it was agreed that Option 1 (best fit) could be dropped, as it does not resolve existing inconsistencies and lack of rationale, it merely removes the extremes.[8]

6.10.8 The following three options will be taken forward for further consideration:

  • Option 3: Fixed Charge plus rate per lane metre per mile based on distance threshold;
  • Option 5: Constant rate per lane metre per mile within distance band; and
  • Option 7: Flat Fare per lane metre within distance band.

6.10.9 Each of the above options was seen by stakeholders to be broadly acceptable for further consideration because they retain a clear link to the distance of the crossing, are consistent, transparent and inherently fair. In addition, each of the options are deemed to broadly deliver against the criteria set by Transport Scotland and would be appropriate going forward, subject to further development.

6.10.10 The following table summarises the key issues for each of the three options based on the quantification analysis exercise and shows the routes that would be more adversely affected by each of these options.

Table 6.1: Options to be Taken Forward for Further Consideration
Option Pros Cons Routes with most adverse Impact
Option 3: Fixed Charge (assumed at £50) plus rate per lane metre per mile based on distance threshold 1) Limits the impact of fares changes on long routes.

2) Includes a fixed cost element aimed at cost recovery.

3) Maintains link between cost and distance 		1) Long routes suffer disproportionately large increases under the example formula.

2) Particularly large increases for the Northern Isles 		1) Lerwick - Aberdeen

2) Kirkwall - Aberdeen
Option 5: Constant rate per lane metre per mile within distance band 1) Relatively small fare changes vis a vis the current situation.

2) Maintains a link between cost and distance and minimises the overall change in fares. 		1) Defining distance bands would be challenging and could disadvantage one community over another

2) Lacks a fixed cost element aimed at cost recovery. 		1) Oban - Castlebay / Lochboisdale

2) Uig - Tarbert / Lochmaddy
Option 7: Flat Fare per lane metre within distance band 1) Relatively small fare changes vis a vis the current situation.

2) Maintains a link between cost and distance and minimises the overall change in fares. 		1) Defining distance bands would be challenging and could disadvantage one community over another

2) Lacks a fixed cost element aimed at cost recovery. 		1) Lerwick - Kirkwall

2) Kirkwall - Aberdeen