Research and Analysis of Options for Ferry Freight Fares

7 Surcharges, Discounts & Policy Questions and Consultation Responses

7.1 Overview

7.1.1 This section sets out the consultation responses to the questions surrounding discounts, surcharges and policy questions.

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

7.2 Wide Loads

Consultation Question: Do you think that the current definition and treatment of wide loads should continue?

CHFS & Northern Isles Operators

7.2.1 CalMac support the continuation of the current treatment of wide loads. It did note that dangerous goods currently consume an extended footprint on the car deck (in line with regulations). The company explained that extra revenue could be raised through surcharging these goods. However, it explained that these costs would likely be passed on to island communities and thus recommend maintaining the status quo.

7.2.2 Serco NorthLink noted that a consistent approach is required whatever the vessel utilisation. Serco NorthLink explained that it does not have an upper limit on width and this is something that could be explored in the forthcoming Review.

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

7.2.3 There was broad consensus amongst public sector stakeholders that the current definition and treatment of wide loads is appropriate and should continue.

7.2.4 HITRANS, Orkney Islands Council and Shetland Islands Council explained that the potential removal of width related surcharges on quieter sailings on frequent crossings could be a useful demand management measure to incentivise wide loads onto these low utilisation sailings.

Industry Bodies

7.2.5 The FTA and RHA noted that the current policy with regards to the charging of wide loads is acceptable. This point was echoed by the NFUS and Gleaner Oils.

7.3 Weight-Related Surcharges

Consultation Question: Do you think there should or should not be weight related surcharges?

CHFS & Northern Isles Operators

7.3.1 CalMac explained that it does not see a benefit in weight related surcharges - from a safety perspective and in terms of operational simplicity, its view is that any vehicles carrying a load above its plated weight will simply be refused carriage. On occasions where a vehicle is less than 6 metres in length and plated to carry seven tonnes, a surcharge is levied for any weight over 3.5 tonnes. CalMac did not specifically comment on this surcharge.

7.3.2 Serco NorthLink does not inherently support weight-related surcharges, explaining that weight does not affect the capacity of its vessels and that to add such a surcharge would unnecessarily further complicate the fares system. In addition, the company also does not want to incentivise firms to misrepresent the weight of CVs as this could give rise to ship safety and stability concerns.

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

7.3.3 There was a broadly held view amongst the majority of stakeholders that weight-related surcharges are generally inappropriate. Consultation responses suggested that where a vehicle is identified as being in excess of its plated weight, it should be refused carriage. Shetland Islands Council also highlighted the high level of investment that would be required in weighbridges to enforce such a policy.

7.3.4 Orkney Islands Council noted that, on the very rare occasions when vessels have deadweight issues, there could be a surcharge levied to account for the loss of other revenue earning traffic. On the other hand, it was acknowledged that such surcharges would likely be passed onto islanders and could have a negative impact on sustainability.

Industry Bodies

7.3.5 There was a consensus view amongst industry bodies that weight related surcharges are unnecessary.

7.4 Height-Related Surcharges

Consultation Question: Do you think that there should or should not be height related surcharges?

CHFS & Northern Isles Operators

7.4.1 CalMac does not support height related surcharges but are considering a programme of restrictions for CVs on peak sailings, particularly with a view to managing the capacity issues which may be caused by RET. This measure will be implemented on the Ardrossan - Brodick route in summer 2015 and will ensure that on certain sailings, the mezzanine decks can always be deployed, ie maximising car-carrying capacity.

7.4.2 This point was echoed by Serco NorthLink which noted that a simple fare system requires simple parameters. The company explained that a significant volume of freight can be moved on its freighters (which have fewer height constraints).

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

7.4.3 There is unanimous consensus across public sector stakeholders that there should not be height-related surcharges. It was widely acknowledged that, on a route served by a vessel with mezzanine decks, encouraging high side vehicles onto quieter sailings where practical could be a valuable part of any demand management strategy, but surcharges per se were not favoured by consultees.

Industry Bodies

7.4.4 The RHA and FTA object to the principle of a height related surcharge as they see it as an issue of vessel design, a point echoed by Gleaner Oils. The NFUS explicitly state that excess height should only attract a surcharge in exceptional circumstances. It noted that it is imperative that standard lorries or floats do not attract surcharges, as it believes that it could negatively affect island agriculture.

7.5 Drop Trailers

Consultation Question: Is there any case for a lower lane metre rate for a drop trailers and should the introduction of a transparent handling charge be considered?

CHFS & Northern Isles Operators

7.5.1 CalMac support drop trailer movements where operationally practical but do not support a handling charge.

7.5.2 Serco NorthLink currently operates a drop trailer service. The company explained that the current tariff is contract specified and it is likely that it does not cover the full cost of handling drop trailers. Serco NorthLink believes that drop trailer costs should be captured within the lane metre charge.

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

7.5.3 Argyll & Bute Council believes that the option of a drop trailer service should be available on appropriate routes across the network. It sees this as fair, supporting demand management and ensuring the ferry is competitive with bulk operations, particularly on islands like Islay (grain) and Mull (timber).

7.5.4 The Council supports the introduction of a transparent handling charge as a means to recoup the cost of marshalling the trailer. However, it noted that this charge should not remove or significantly weaken the incentive to use drop trailers.

7.5.5 Comhairle nan Eilean Siar is supportive of a drop trailer service on the assumption that it would facilitate operational efficiencies relating to the utilisation of deck space and during the turnaround of vessels in port. The Comhairle also explained that, subject to them being fair, transparent and consistent, in keeping with the principles of the proposed overarching fares structure, the introduction of transparent handling charges by the ferry operator would not be deemed unreasonable.

7.5.6 North Ayrshire Council noted that it supports the introduction of a transparent handling charge for drop trailers, as it seems both fair and would also assist in freeing up revenue earning space on the car deck. The Council explained that the charge should be less than the saving offered by using a drop trailer service. The Council did explain that careful consideration should be given to the ability of ports to accommodate drop trailer handling before the introduction of any such service.

7.5.7 Orkney Islands Council currently operates a drop trailer service and recognises the value that hauliers get from utilising drop trailers, particularly on longer and infrequent routes. At the same time, the Council noted that drop trailers do import cost into the ferry operation through having to keep and maintain handling assets shoreside as well as trestles and chains on the vessel to secure trailers. With this in mind, the Council supports a surcharge for handling drop trailers, although it believes that this should be subsumed within the overall tariff and should still ensure an incentive to use drops.

7.5.8 Shetland Islands Council supports a drop trailer operation but does not have a particularly strong view on the issue of a handling charge. It noted that there is not an obvious benefit in moving away from the current situation, although it explained that the haulage industry will be better placed to offer comment on this issue.

7.5.9 Drop trailers are not currently an issue in the SPT area, but overall the organisation does support the concept of drop trailers where operationally practical as well as the implementation of a transparent handling charge.

7.5.10 HITRANS would support the introduction of a drop trailer service on appropriate routes. It noted that it could be an effective capacity tool and could manage the deadweight issues faced on a number of the older and smaller ferries. The organisation would also support the introduction of a transparent drop trailer handling charge providing this does not significantly lessen the incentive to use drop trailers.

7.5.11 HIE noted that it would support a drop trailer service on routes where there is a clear case and demand for it (in particular the longer routes ex Oban, where this could provide significant benefits to hauliers and island businesses/communities). It also agreed that the introduction of a handling charge appears to be a reasonable means of recovering the cost of a drop trailer operation. In addition, HIE explained that a handling charge would in part address the issue of inequality whereby one island may benefit from a drop trailer service whilst another may not.

Industry Bodies

7.5.12 The RHA and FTA both support drop trailer operations but not the application of a handling charge. Conversely, Gleaner Oils does not make direct use of any drop trailer operations because they are typically conveying dangerous goods. However, it noted that where there is a cost to the ferry operator of handling drop trailers, there should be a transparent handling charge implemented.

7.6 Demand Management

Consultation Question: Should Transport Scotland consider extending the scope of off-peak and peak pricing to enable greater demand management?

CHFS & Northern Isles Operators

7.6.1 CalMac strongly supports demand management, particularly with the emergence of RET. It is keen to encourage tourism traffic, which it sees as essential to supporting and growing the island economies.

7.6.2 CalMac is willing to consider the full range of demand management measures, from peak and trough pricing, through to drop trailers and the restriction of certain traffic types on busy crossings. CalMac explained that improved management of block bookings for hauliers will be an important element of demand management considerations.

7.6.3 Serco NorthLink supports options to improve demand and capacity management overall.

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

7.6.4 Argyll & Bute Council supports the adoption of demand management measures to address the likely capacity issues which emerge with the introduction of RET. This will be particularly key for Mull and Islay. The Council noted that it would support a combination of peak and trough pricing, drop trailers, improved management of block bookings and restrictions of CVs on certain peak sailings.

7.6.5 Comhairle nan Eilean Siar strongly supports the general principle of effective demand management in addressing significant capacity constraints during peak times. However, the levying of higher fares on peak sailings is not considered to be a suitable element of effective demand management.

7.6.6 North Ayrshire Council supports the concept of demand management, using a combination of trough pricing for off-peak services (either by time of day or day of week) and peak pricing for the busiest services. It believes that this would create the greatest incentive to switch to quieter sailings. The Council also explained that some consideration should be given to working with the supply side of island economies to help alleviate demand issues on the ferries. For example, consideration should be given to working with cottage providers to offer more midweek to midweek lets.

7.6.7 Orkney Islands Council supports the concept of demand management in principle but also explained that it does not believe it applies in the Northern Isles routes.

7.6.8 The Shetland Islands face an even more pronounced issue than the Orkney Islands, where there are only a handful of connections to the Scottish mainland each week. However, Shetland Islands Council noted that, in principle, enhanced demand management is worthy of further consideration as it is an efficient means of maximising asset utilisation (although the Council stressed that it should not be seen as a means of generating more revenue from choice constrained travellers). The Council explained that if such a demand management policy were to be developed, it needs to be considered over different time periods as peaks and troughs for freight can be over extended periods.

7.6.9 SPT took the view expressed by a number of other stakeholders that demand management should be focussed on trough pricing and other non-price measures designed to incentivise hauliers onto lightly used sailings, either by time of day or day of week.

7.6.10 HITRANS supports demand management measures. However, it does not support peak pricing measures, instead preferring a combination of trough pricing, drop trailers, yield management and restrictions on certain sailings. Crucially, HITRANS noted that each route should be treated on its own merits - they believe that what works on one will not necessarily work on another. For example, on routes with infrequent sailings, trough pricing incentivising hauliers onto quiet sailings is not an option.

7.6.11 HIE noted that the demand management questions on each route will be very different and thus it is reasonable to apply a bespoke approach combining trough pricing, drop trailers, penalties for 'no shows', restricted sailings and yield management style pricing. HIE would not support an additional levy on fares on busy sailings, preferring instead the menu of options set out above.

Industry Bodies

7.6.12 The RHA and FTA support demand management measures and noted that it is a standard practice in the transport industry. However, they do point out that, in their view, peak pricing should not be adopted, rather the focus should be on trough pricing and non-price measures.

7.6.13 Gleaner Oils does not support the principle of demand management as it views the costs of running the service as being the same to the operator regardless of how busy the ferry is. Whilst it acknowledges that there may be some disbenefit in terms of unmet demand, it noted that it would not be easy for the business to amend its operation to work around cheaper or restricted sailings. It explained that this would be the same for many island haulage firms.

7.6.14 NFUS does not support peak pricing but would welcome trough pricing, which it sees as a potentially useful measure for encouraging local businesses to utilise the ferry at less busy points in the day. The organisation also noted that any demand management policy should not unfairly disadvantage island businesses compared to tourists.

7.7 Bunker Adjustment Factor

Consultation Question: Do you think that a Bunker Adjustment Factor should or should not be considered further?

CHFS & Northern Isles Operators

7.7.1 CalMac do not support a Bunker Adjustment Factor as they believe the service is of a lifeline nature and that increased fuel prices would simply be passed on to island businesses, undermining sustainability. Serco NorthLink also explained that fairly high fluctuations in the oil price could have tangible impacts on sensitive island businesses.

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

7.7.2 Argyll & Bute Council does not support the introduction of a Bunker Adjustment Factor as this would be unpopular and could impact on the sustainability of the islands if, as is likely, increased costs were passed on to island customers.

7.7.3 Comhairle nan Eilean Siar does not support the inclusion of a BAF in CV fares. It noted that the use of such a surcharge would introduce a more complicated fare structure which would likely be subject to constant change with fuel price increases being passed on to already fragile island and peninsular economies.

7.7.4 North Ayrshire Council explained it can see both sides of the argument on this front and therefore does not have a strong view either way. It did indicate that, if a BAF were to be introduced, there would need to be a clear commitment to this being transparent, fair and offering full pass through.

7.7.5 Shetland Islands Council supports the introduction of a BAF in principle, so long as it fully reflects downward as well as upward movement in the fuel price (it noted any solution that generates a higher profit for an operator would be unacceptable). Shetland Islands Council noted that CPI / RPI is too remote a measure on which to increase fares given the importance of fuel for transport services.

7.7.6 The Council does however note that any BAF would need to be carefully designed and offer an element of short-term certainty as predictability is important for freight customers.

7.7.7 SPT acknowledged that a BAF would protect the operator against fuel price risk but, overall, it felt that such a surcharge would have a negative impact on the islands and would damage economic sustainability.

7.7.8 HITRANS explained that it recognised the potential concern that could arise from the implementation of a BAF which could see fuel price increases passed on to island communities with potentially negative impacts on key industries in the islands. However, it also recognised that road freight costs would increase from the same commodity price fluctuation and in a road equivalent scenario there could be a case for a BAF. The impact of a BAF is one that would justify further research to understand impacts.

7.7.9 HIE explained that large hauliers are well accustomed to BAFs and would, in all likelihood, pass the cost (and potentially the benefits) on to their customers. It noted that this could introduce uncertainty and negative impacts on island businesses using the haulage service, many of which are concentrated in fragile or low value sectors. Overall, HIE does not support this approach for the reasons outlined above. It also explained that the current fares structure has very little relationship to operational costs and thus question the sense in making a direct linkage with regards to fuel prices.

Industry Bodies

7.7.10 Both FTA and RHA reject the principle of a BAF. They explained that the key issue for the freight sector is price stability and predictable costs. They do not rule out the possibility of an annual uplift / reduction to the RPI / CPI fares increase which reflects fuel price movements over the year.

7.7.11 Gleaner Oils explained that this is a widely used approach in the haulage industry and would support a BAF providing this was done transparently - ie the surcharge is reduced when oil prices go down and increased when they increase.

7.7.12 NFUS noted that a BAF should not be considered, as it believes that this would be an unfair levy on users.

7.8 Discounts

Consultation Question: In principle, do you think there is a case for continuing with TRS as currently applied?

CHFS & Northern Isles Operators

7.8.1 CalMac acknowledged that TRS clearly favours the large incumbent hauliers and also gives island-based hauliers an advantage. It recognised that TRS can have competition impacts but noted that volume-based discounts are a common commercial practice and, by supporting island hauliers, they are creating and maintaining high value haulage employment on the islands. In summary, CalMac supports TRS in its current form.

7.8.2 TRS does not apply on routes to the Northern Isles.

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

7.8.3 Argyll & Bute Council supports the TRS principle as it supports island hauliers and jobs and can be consistently applied across the network. TRS is particularly crucial to Islay and its removal could result in a further dissipation of freight onto coasters.

7.8.4 Comhairle nan Eilean Siar believes that the continuation of any rebate scheme should be considered in the context of an effective and efficient demand management process and applied in a fair, transparent and consistent manner across the network.

7.8.5 North Ayrshire Council does not have a strong view on this issue but did explain that close consultation with the hauliers would be required to ensure the implications for different sizes and types of haulage firms are clearly understood.

7.8.6 Orkney Islands Council does not believe that there is a case for offering TRS on a publicly subsidised service, with their principal concern one of smaller players in the haulage sector being disadvantaged. The Council recognise that, in a commercial / competitive situation, volume based discounts are a strategic business tool but it believes it to be inappropriate for a subsidised network.

7.8.7 Shetland Islands Council is neutral on this issue. On the one hand, it noted that volumes are stable and TRS would be unlikely to grow the market, whilst there also appears to be healthy haulier competition in the Shetland Islands. However, on the other hand, the Council believes that a TRS discount would be of value if it could be proven that it supported the growth of the island economy.

7.8.8 SPT noted that there is a commercial argument for volume based discounts but explained that it should be tied to a penalty regime for 'no shows'. SPT does not see TRS as having overly negative competition effects. Whilst it benefits the larger hauliers, it believes that it also allows these firms to offer a full service operation which may not otherwise be possible.

7.8.9 HITRANS sees TRS as causing a degree of inequality between islands and would support a more equitable across the board fares reduction, again providing this does not have specific negative effects on given islands.

7.8.10 Like HITRANS, HIE noted that, as all ferry services are loss making and TRS is not contributing towards a commercial outcome for the operators, it would be fairer if the 'TRS pot' was evenly distributed through reductions to the core fares. HIE also stressed the need to be clear on the potential State Aid implications of TRS.

Industry Bodies

7.8.11 The FTA and RHA noted that individual members will have their own views on this question depending on the extent to which TRS supports their business. Overall, the RHA would support the retention of TRS, whilst FTA would not have any in-principle objection.

7.8.12 Gleaner Oils does not currently receive TRS, although it did previously benefit from the discount on routes to the Western Isles. Overall, it does support the principle of volume based discounts, as it rewards hauliers making greatest use of the ferry.

Consultation Question: In principle, do you think there is a case for continuing with the 10% overnight discount as currently applied on the Stornoway - Ullapool route?

CHFS & Northern Isles Operators

7.8.13 CalMac supports the continuation of this discount. Without it, there be no incentive to use the overnight ferry and clear capacity issues would emerge on the daytime sailings.

7.8.14 This issue is not applicable on Northern Isles routes.

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

7.8.15 There was widespread support amongst the majority of stakeholders for the continuation of this measure as part of a demand management policy. Indeed, there was a view that initiatives of this nature should be developed as a demand management measure on other islands, Islay for example.

7.8.16 The only concern about this measure was expressed by HIE, who explained that that it could be seen as unfair to those islands which do not have the option of an overnight or off-peak freight service with equivalent reduction. One potential measure to address this could be to set daytime and overnight freight fares so that the average CV fare on the route is as defined by the general formula / approach for setting published fares, whilst maintaining a 10% differential between the two. (This approach could also be adopted on other routes where differential pricing is proposed for demand management purposes).

Industry Bodies

7.8.17 There was a unanimous view from across consultees that the 10% reduction on the overnight Stornoway - Ullapool freight sailing is a useful demand management tool and should be retained.

Consultation Question: In principle, do you think there is a case for continuing with commodity related discounts as currently applied? If so, which commodities should receive a discount?

CHFS & Northern Isles Operators

7.8.18 CalMac explained that commodity related discounts are inequitable from the point of view that some industries benefit whilst others do not. It noted that State Aid questions may also apply here.

7.8.19 Serco NorthLink noted that, in principle, no one sector should receive preferential treatment over another. However, it noted that there may be a social need for discounts for sensitive sectors where sustainability is marginal. The operator sees this as a question for Transport Scotland, following further and specific consultation as and when required.

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

7.8.20 Argyll & Bute Council explained that commodity related discounts are inconsistent and unfairly disadvantage one island and industry over another. It noted that there are volume imbalances across all commodities and an empty return discount or across the board discounting would be more appropriate.

7.8.21 Comhairle nan Eilean Siar responded that there is a need for further research in this field. It noted that the contribution that different commodities make to the economic wellbeing of island and peninsular communities across the country vary significantly. The Comhairle explained that that the availability of commodity-related discounts may introduce a level of inconsistency at a network level, which is contrary to the aims of the Review. The Comhairle suggests that cognisance be given to the national strategic priorities and policies associated with these commodities in determining availability and levels of support.

7.8.22 North Ayrshire Council explained that this is a difficult question to answer as it depends on the commodities being considered. Overall, it believes that current discounts should be retained if they support island sustainability. It also noted that a discount for timber should be provided - this is a key issue for Arran in particular, where the cost of transporting timber is in some cases larger than the profit to be made from it.

7.8.23 Orkney Islands Council recognises that discounts are in place to support the viability of sensitive sectors. As a result, the Council views it as inappropriate for the Transport Scotland / transport budget to arbitrarily apply sectoral discounts. It noted that any sector specific discounts should be funded through the budgets of that sector or a relevant development agency and that there should be a mechanism for this funding to provide additional support with transport costs. In the context of Orkney, it is argued that the Council, rather than Transport Scotland or Serco NorthLink, should be making choices over whom to provide additional transport support to (based on its local economic priorities).

7.8.24 The view of Shetland Islands Council broadly reflects that of Orkney, in that it believes that it is important that the basis of fares is consistent and understood. The Council explained that there is a need for a fresh look at all discounts to establish their ongoing relevance, the role that they play and whether transport and transport funded discounts are the optimal means of achieving a given social or economic policy purpose.

7.8.25 SPT did not express a firm view on this issue but noted that some of the islands in question are very much single industry economies and suggested that great care is taken when considering the future of these discounts.

7.8.26 HITRANS echoed the view of Shetland Islands Council that there is insufficient evidence as to the need for commodity related discounts. It explained that robust and defensible evidence on the need for these discounts needs to be provided if they are to be retained and / or extended.

7.8.27 HIE noted that commodity-related discounts support various primary sector activities which are economically important in a number of communities, and which may cease to be viable without them. Simply removing the existing discounts is likely to have a negative impact in a number of communities.

7.8.28 However, it also noted that it is fair to ask (within the context of overall economic objectives) whether the focus of the current discounts is correct, as there may be other activities / commodities which could have a good claim (e.g. bulk tankers transporting milk, fuel, specialist waste vehicles etc). HIE noted that there is a need for more detailed research to inform policy in this area, to ensure that such discounts are applied with a clear and consistent rationale, with the aim of sustaining / encouraging economic activity in the islands - perhaps not just in farming / fishing, but also food processing and manufacturing more generally. HIE also explained that decisions in this area should take account of other Scottish Government policies / strategies regarding the food and drink growth sector (which includes agriculture and fisheries).

7.8.29 HIE stressed the importance of considering State Aid issues in the context of commodity discounts. In addition, it posed the question as to whether ferry fare discounts were the optimal manner of supporting island business, citing the Western Isles Inter-Island Business Development Scheme, which is a De Minimis scheme which allows the island business rather than the haulier to directly claim the benefit of any commodity subsidy / discount. A network-wide De Minimis scheme (or a notified State Aid scheme) could be used to provide assistance with ferry transport costs for particular commodities or where specialist vehicles are required. This could also be extended to all SMEs more generally as a means of supporting economic activity in the islands / peninsulas.

Industry Bodies

7.8.30 Both the FTA and RHA noted that there is a case for maintaining commodity related discounts on socio-economic grounds. They noted that to remove them from sensitive sectors could have a devastating impact on that sector and in turn island economies (particularly in single industry islands). Both organisations did echo the point made by a number of Councils that, whilst Transport Scotland is the correct body to be implementing discounts, they are not necessarily the right body to be funding the discounts and determining who gets them.

7.8.31 Gleaner Oils would support a discount for their sector as it has no realistic potential of obtaining a backload.

7.8.32 NFUS acknowledges that commodity related discounts represent a substantial cost. However, it wishes to make clear that for island businesses, these subsidies represent a lifeline without which they would be unable to function. It explained that removal of such discounts should not be considered, as this would devastate the rural economies in these fragile areas.

7.8.33 It also noted that volume discounts are invaluable to agriculture on the islands, particularly for hay and straw delivery. The discounts enable hauliers to secure local drivers, so it is seen nto be of great benefit to the local economy.

7.8.34 NFUS considers that commodity related discounts for hay, straw, and livestock should continue. An extension of the discount to cover milk would also be of great assistance for dairy farmers on the islands.

Consultation Question: In principle, do you think there is a case for a universal empty return discount, or should this only apply to certain sectors? If so, which ones?

CHFS & Northern Isles Operators

7.8.35 CalMac would support this approach over commodity specific discounts, as it is both more logical and more equitable. It did however explain that it would present a challenge for ticketing and harbour staff in determining when an 'empty is an empty'. Some thought would have to be given to this.

7.8.36 Serco NorthLink currently operates an empty return service with outward and return rate applicable for both legs but the return empty leg charged at the empty trailer rate. It noted that this service supports the sustainability of the islands and should be fairly applied to all sectors.

7.8.37 However, Serco NorthLink does note that empties should only be shipped when there is capacity available and not to the detriment of full fare paying commercial and passenger vehicle traffic. It also explained that an 'empty' trailer should be exactly that.

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

7.8.38 Argyll & Bute Council would support the universal empty return discount in principle, particularly in comparison to commodity related discounts. SPT and North Ayrshire Council also support a universal empty return policy in principle

7.8.39 Comhairle nan Eilean Siar does not support the case for a universal empty return discount. However, it noted that cognisance has and should continue to be given to the availability of discounts for specialist vehicles, such as vivier lorries used for the transportation of live shellfish.

7.8.40 Orkney Islands Council noted that, if car deck lane meterage is the basis of the fare, any vehicle taking up space on the car deck, empty or otherwise, should be charged. The Council felt that a more appropriate strategy would be to reduce the return fare rather than offer a one way empty discount.

7.8.41 The Shetland Islands are a net exporter of goods and have a need to get empty trailers back to the islands. Shetland Islands Council noted that the principle of an empty return has an element of sense but, like Orkney, feel that a lower fare overall would be of value. Overall, the Council is neutral on this issue and feels it is for the haulage industry to comment on.

7.8.42 HITRANS noted that there would be significant revenue implications with this policy and arguably additional subsidy made available to fund it could be better spent on lowering the level of fares more generally. It also noted that this policy could be confusing in terms of how an 'empty' is defined. In addition, it creates an incentive at the margin not to take small loads which would jeopardise the empty return discount. HITRANS sees this as counter-intuitive.

7.8.43 HIE explained that it can see how a universal empty return discount may benefit a wide range of economic activities, and islands where it can be difficult to secure return loads, but accept that to widen this out to all commercial vehicles across the network would be costly (or require a significant increase in published fares to pay for it), and could be difficult to police.

7.8.44 HIE noted that there may be an economic case for empty return discounts for non-standard goods vehicles serving various primary sector and manufacturing/processing industries, which because of their specialist nature are unable to take return loads. This could also be extended to road tankers delivering fuel and other bulk commodities which have to return empty. There is a need for more detailed research to inform policy in this area, to ensure that any such discounts (or other forms of support) are applied with a clear and consistent rationale.

Industry Bodies

7.8.45 The RHA and FTA broadly support a universal empty returns policy. They noted that, if the policy is not universal, there has to be a clear rationale linked to wider social and economic benefits for those in receipt of an empty return discount.

7.8.46 Both organisations also noted that there is a need to clearly define what is classified as an 'empty' vehicle, as this currently causes issues. In addition, both organisations explain that, where such a policy is in place, there needs to be a clear match with a full load on the outbound leg.

7.8.47 Gleaner Oils would support an empty return policy for its sector as it has no realistic potential of obtaining a backload.

7.8.48 NFUS considers that it is vital that the universal empty return discount is retained for agricultural purposes. It explained that there are a limited number of island hauliers, and the empty return discount serves as an important incentive for them to provide services to the islands. They see it as vital that it is economically viable to transport animals to and from the islands.

7.9 Defining a Commercial Vehicle

Consultation Question: In your view, what is the most appropriate way to define a commercial vehicle?

CHFS & Northern Isles Operators

7.9.1 CalMac noted that any vehicle over 3.5 tonnes plated weight should be considered a commercial vehicle, with a length based charging system being applied thereafter. This is consistent with the Driver and Vehicle Standards Agency (DVSA) classification of commercial vehicles.

7.9.2 Serco NorthLink suggested any vehicle over 3.5 tonnes should be classed as a commercial vehicle. It also noted that the application of a >3.5t formula would support SMEs.

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

7.9.3 Argyll & Bute Council support the view that a commercial vehicle should be defined as anything over 3.5 tonnes plated weight, with a length based charging system adopted thereafter.

7.9.4 Comhairle nan Eilean Siar suggest that further research and consultation is required in this field. In any event, it noted that the implementation of any definition should be consistent and enforceable across the network and be undertaken in a transitional approach.

7.9.5 The Comhairle noted the incidence of "smaller" commercial vehicles, often not much longer than a normal car, being more prevalent on routes serving smaller, less-populated communities; conversely, the larger communities are generally serviced by "larger" commercial vehicles. It noted that this difference in dependencies is very important and must be recognised in any definition of a commercial vehicle and associated pricing structure.

7.9.6 The Comhairle also supports the suggestion that the availability of RET fares for vehicles less than 6m is enabling businesses to expand and that non-RET CV fares are acting as a constraint on certain economic activities. The Comhairle would support HIE's suggestion that reductions in CV fares will, over time, result in more productive, competitive and successful island/peninsular communities.

7.9.7 Orkney Islands Council acknowledges the significant challenge in determining a precise definition for a commercial vehicle, particularly in the smallest communities where a vehicle can have multi-purpose uses. The Council explained that they feel that the Serco NorthLink approach is as a close to a reasonable definition as can be reached. It noted that this approach adds some 'intelligence' to the process and ensures that vehicles which are very clearly employed on a commercial purpose are treated as such. This point was echoed by North Ayrshire Council.

7.9.8 Shetland Islands Council also acknowledges the challenge with effectively defining a commercial vehicle. It explained that on islands, many people use a pickup or other light commercial vehicle as a second car. The Council suggests that this definition requires further consideration.

7.9.9 SPT acknowledged that this is a challenging question in every respect. It explained that any threshold based system creates an incentive at the margin to fall under the threshold. SPT noted that a CV could be defined through a combination of the vehicle's length, volume, weight and whether it is predominantly used for a commercial purpose. However, it acknowledges that such a system would be difficult to implement and enforce and it feels that the current definition on CHFS routes is appropriate, if not perfect.

7.9.10 HITRANS and HIE also acknowledge that this is particularly challenging question. Both noted that is another area where more detailed research / appraisal is required to inform policy, particularly with respect to the economic outcomes of different options. HIE explained that appraisal should consider the potential role of discounts for smaller vans as a means of enabling new/additional economic activity (a point also raised by Comhairle nan Eilean Siar), compared to charging all CVs on the same basis, and the potential use of De Minimis or notified State Aid schemes as an alternative to fare discounts.

7.9.11 HIE noted that, in theory, the strategy would be to take the Serco NorthLink approach of charging any vehicle that looks like a CV as a commercial, van traffic for example.

7.9.12 With regards to the CHFS network, HIE noted that, in principle, there should be a level playing field for all sizes of CVs which is both implementable and can be policed. Although the introduction of RET for CVs up to 6m has clearly benefitted a number of businesses, without the parallel roll-out of RET for larger CVs (which was the original intention), it has created a significant market distortion due to the very large differential in rates paid by CVs either side of the 6m threshold. Whilst the RET discount for small vans has been welcomed by many, HIE noted that it risks undermining island based haulage firms, which in turn could impact on other businesses that rely on regular HGV loads.

7.9.13 However, HIE explained that introducing the NorthLink approach across the CHFS network (and so removing RET for sub-6m CVs) would clearly be a significant change, particularly since the introduction of RET is very recent, and indeed will only reach some routes / communities in October 2015. It noted that Transport Scotland should be aware that a number of businesses, including some account managed by HIE, have invested in new vans to take account of the lower RET rates, which has enabled them to expand their businesses.[9] Withdrawing RET for sub-6m CVs (and charging a full CV rate for these vehicles) may result in some of these business activities ceasing to be viable.

7.9.14 HIE explained that any such change to the charging of sub-6m CVs on the CHFS network would therefore need to be handled carefully, ideally through setting out a clear plan for transition over a number of years, which will provide time for businesses to plan and adjust. In this scenario, HIE believes that it will be important to demonstrate that rather than removing discounts for sub-6m CVs, that subsidy is being shared across all CVs so that there is a net reduction in all published fares.

7.9.15 Further, HIE noted that whilst recognising the principles of a 'level playing field', lower RET fares for sub-6m CVs appear to be helping to stimulate economic activity, and that there may be valid economic reasons for providing some level of discount for smaller CVs that would in particular benefit SMEs seeking to establish or grow their businesses (but without creating significant market distortions). Apart from retaining some element of general discount for smaller CVs in the fare structure, another option could be a De Minimis scheme (or notified State Aid scheme) to assist SMEs with their ferry freight costs (whether incurred directly or via a haulier).

7.9.16 Finally on this question, HIE noted that the fact that the introduction of RET fares for vans is enabling some businesses to expand demonstrates that current (non-RET) CV fares are acting as a constraint on some economic activities. HIE is confident that as a general rule, reductions in CV fares (or schemes to assist businesses with ferry transport costs) will over time result in more productive and successful island/peninsular economies.

Industry Bodies

7.9.17 The FTA and RHA explained that defined rules are not appropriate as they are easy to work around, raising issues of inappropriate vehicles that are potentially overloaded / dangerous / insufficient or which have no proper insurance liability provision etc trying to compete with much more professional hauliers. Both organisations endorsed the Serco NorthLink approach of treating all commercial traffic as CVs, with staff using their judgement to determine this.

7.9.18 The FTA and RHA noted that the growth of home and internet shopping is driving an increase in parcel traffic, much of which is carried in vans. On RET routes, such vans are classified as cars and thus not charged a commercial rate, making it harder for large hauliers to compete. The trade bodies explained that this is creating distorted incentives at the margin. However, at the same, time, they also acknowledge that businesses and operators who have engineered their solutions to meet this CV definition could be badly impacted by a change in that definition. Both organisations stressed the need for a long notice and lead in period should the research find in favour of a change.

7.9.19 Gleaner Oils indicated that anything other than a standard car should be classed as a commercial vehicle and charged accordingly. Whilst they do acknowledge that businesspeople, for example, could travel at a car rate, they see this as a fairer approach overall.

7.9.20 NFUS noted that a CV should be defined as being plated to carry 3.5 tonnes, or less than 3.5 tonnes but more than 6m in length.

7.9.21 It also noted that tractors should be considered separately because, if they are charged by weight and viewed as a CV, then it makes it overly expensive to take a tractor on a ferry. NFUS does not agree that anything other than a car should attract a commercial vehicle rate, as it is possible that tractors and trailers would be included in this.

7.10 Should Fares Rise to Reflect Network Improvements?

Consultation Question: Should fares rise to reflect specific improvements to the network when they are introduced?

CHFS & Northern Isles Operators

7.10.1 CalMac would not support this approach as it could undermine the sustainability of these communities.

7.10.2 Serco NorthLink noted that the operator was not the price setter, adding that infrastructure, piers and vessels are part of the core service and should be invested in over time.

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

7.10.3 There is little appetite amongst public sector stakeholders for increased fares designed to recover some of the cost of specific network improvements. There was a near consensus view that this was similar to a bridge toll and could lead to a perverse situation whereby communities do not want to see an improvement in their level of service.

7.10.4 The only area where this could be seen to be acceptable would be for non-core services similar to those quoted in the Serco NorthLink response.

Industry Bodies

7.10.5 As with the public sector, the consensus view amongst industry bodies is that it is inappropriate to increase fares to reflect service improvements.

7.11 Loose Parcel Service

Consultation Question: Is there a case for the continuing provision of a loose parcel service on some routes but not others?

CHFS & Northern Isles Operators

7.11.1 CalMac would like to see this service removed (unless no alternative option exists) as it presents operational, safety and security issues.

7.11.2 Serco NorthLink does not carry loose parcel freight.

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

7.11.3 Argyll & Bute Council explained that this is a historical anomaly which needs to be addressed going forward. Its view is that, if it is to be continued, it should be available to all islands.

7.11.4 Comhairle nan Eilean Siar noted that, although a loose parcel service is not available on routes to and within the Western Isles, the Comhairle recognise the importance of such a service to communities and routes such as Eigg, Rum, Canna and Muck. It is suggested that, if the demand exists on these and other such routes, the service could and should be continued.

7.11.5 North Ayrshire Council explained that they would support the continuation of this service if it is well used and does not cause specific problems for the operator. Indeed, they explained that this could be marketed as more of a commercial venture from which additional revenue could be made.

7.11.6 Orkney Islands Council explained that loose parcels are still carried on a number of their services. Its view is that such a service should continue where it is appropriate or where there is not a suitable and affordable alternative.

7.11.7 Like in Orkney, loose parcels are a key element of the internal Shetland services. Shetland Islands Council noted that the loose parcel service is essential on their ferries as there are currently no services available that could consolidate this type of traffic.

7.11.8 SPT noted that the loose parcel on the Firth of Clyde is a historical issue and that its continuation on a small subset of routes seems counter-intuitive. SPT did note that if this service was continued, it should be formalised and included within the advertising for the routes in question.

7.11.9 HITRANS noted that this practice is likely more widespread than is officially recorded. It again explained that a clear evidence based case would be required if this policy is to continue and the costs involved would need to be considered to avoid a significant cost being built into future contracts. By the same token, HITRANS noted that a loose parcel service could be of particular value to islands with a smaller population whose freight needs might not fill a LGV / HGV to capacity.

7.11.10 HIE stressed the need to consider State Aid issues, particularly in terms of competition with parcel couriers. In addition, it again noted the lack of evidence underpinning the need for such a service and feel a robust evidence base as to the benefits should be developed if the practice is to be retained.

Industry Bodies

7.11.11 The FTA and RHA explained that loose freight and parcels are a practical solution in isolated cases and should be retained where there is no realistic or economical alternative.

7.11.12 NFUS had a particularly strong view on this, noting that a loose parcel service should be provided on all routes, with charging on the current basis of weight. In addition, it noted that it is important for their members to retain the current pricing structure for carrying small numbers of livestock on a lorry / trailer and that these are charged at an appropriate headage rate.

7.12 Summary

7.12.1 The above consultation on surcharges, discounts and policy questions provides a combination of consensus and debate. The following sections summarise the key findings.

Key Issues for the Review

Evidence Based Decision Making

7.12.2 One emerging issue that became clear from across the consultation process was the perceived lack of an evidence base used to underpin informed decisions. Whilst the analysis undertaken in this research can identify, for example, the level and distribution of discounting across the network, it does not cover the social and economic impact of these discounts at an island and / or sectoral level.

7.12.3 It is clear from the consultation that some of the wider questions surrounding discounts and policy in particular could lead to significant changes to fares for specific islands or sectors, the consequences of which are not understood at this point. As a minimum, a number of consultees, including HIE and HITRANS, explained that it is important that the Review of Ferry Freight Fares seeks further information on:

  • the role of different discounts at the island and sectoral level and the impact of changing / removing these discounts;
  • the market response to the redefinition of the length at which a vehicle becomes a CV from 5 metres to 6 metres; and
  • the role that loose freight plays in different island communities.

7.12.4 The development of an evidence base to inform such decisions is critical in ensuring that future freight fares policy delivers the established objectives.

The Need for Certainty

7.12.5 The majority of stakeholders raised concerns about the frequently changing nature of the level of freight fares, the means by which they are set and the discounts applied. The freight industry and the businesses which depend on it have a requirement for certainty, which in turn allows for forward planning. Consultees across the board stressed the need for Transport Scotland to:

  • develop an overarching fares policy which will be consistently applied over time; and
  • put in place a timed programme for the introduction of such a policy, taking account of the need for transition where a significant change will occur and market responses to recent fares announcements (eg businesses purchasing vans under 6 metres to take advantage of RET).

7.12.6 There was a commonly held view amongst the majority of stakeholders that the island freight industry has been in a state of flux in recent years, and that there is a need for Transport Scotland to firmly commit to an agreed policy and roll it out accordingly.

State Aid

7.12.7 The issue of State Aid was discussed at the outset of this report and was raised on a number of occasions throughout the consultation. There is a need for Transport Scotland to consult with the State Aid Unit to explore:

  • any State Aid implications with the current discounts and fares policies; and
  • if any of the existing measures could be subject to a State Aid complaint, identification of potential alternative approaches to supporting island communities.

7.12.8 This consultation should ideally be conducted in advance of the Review.

Vehicle Size Surcharges

7.12.9 There was consensus amongst all stakeholders that the current surcharging regime is appropriate, in that a surcharge is levied for wide loads only. Stakeholders generally feel that this system is effective and can see no case for changing it.

Drop Trailers and Handling Fees

7.12.10 There was majority support amongst consultees for the retention of existing drop trailer services and the extension of such operations where there is a demand and it is operationally practical to do so.

7.12.11 CalMac is considering the introduction of drop trailers as part of a wider demand management strategy. Routes identified by stakeholders as being key in this regard were Oban - Castlebay / Lochboisdale and Kennacraig - Port Askaig / Port Ellen. From an operational perspective, stakeholders were of the view that any drop trailer service should be operator controlled unless there is a clear rationale for allowing hauliers to load their own trailers.

7.12.12 There were particularly mixed views on whether it is appropriate or otherwise for the operator to include a transparent handling charge for drop trailer units. The operators could see the logic of this approach but did not see any obvious benefit from adding a further variable into the fares structure. The freight trade associations were also opposed to it. In contrast, a number of public sector stakeholders felt it reasonable to recover the additional costs of a drop trailer operation from users, although ensuring that the overall incentive to use drop trailers remains in place. One stakeholder also noted that this would be a means of ensuring a degree of fairness between islands which do and do not benefit from a drop trailer service.

7.12.13 The issue of applying a handling charge for drop trailers is one which will require further detailed consideration in forthcoming Review.

Demand Management

7.12.14 There was widespread majority support amongst consultees for the implementation of demand management measures, with the key caveat that very few stakeholders support the concept of peak pricing. The consultation suggested that stakeholders are willing to consider a range of other demand management measures including trough pricing by time of day or day of the week; drop trailers; restriction of high sided vehicles on peak sailings; and improved management of block bookings.

7.12.15 A significant number of stakeholders, including HIE and HITRANS, noted that demand management measures must be evidence-based and applied on a route-by-route basis, taking account of route type; frequency; number of sailing days; key commodities being moved etc. In addition there was a generally held view that demand management measures were less appropriate on routes where there are fewer than three return crossings per day.

Bunker Adjustment Factor

7.12.16 There was very little support across the piece for an industry standard BAF, whereby fares are amended frequently in line with the prevailing fuel price. A small number of stakeholders, did point out that the feasibility of an annual 'RPI or CPI plus' increase to the fuel element of the fare could be considered, but it was thought that:

  • further research and consultation would be required to identify the effect of such a measure on island sustainability; and
  • there would need to be a clear and firm commitment from operators to transparently increase or decrease the price in line with movements in the benchmark fuel price.

7.12.17 Over the piece, it was clear that there was not an appetite for a BAF, both amongst operators, trade bodies and the majority of local authorities. A BAF was thought inappropriate for a publicly funded service and there were strong views that such a measure, or any equivalent derived from it, could undermine sustainability.


7.12.18 There was a broad spectrum of opinion amongst stakeholders with regards to the appropriateness of different types of discounts, with no clear majority view on any discounts. The divergence in views was generally driven by the commercial, social and economic benefits that different stakeholders attached to different discounts.

7.12.19 However, what was clear from the consultation feedback (and a point referenced by the majority of stakeholders) was that there is a lack of evidence on how each discount influences patterns of economic activity in the islands and the outcomes at the business, sectoral and community levels.

7.12.20 Consultees explained that further analysis is required on the need for each discount, the benefits they offer at the business, sectoral & community level and the potential alternatives to these discounts (ie could there be other fairer and more efficient discounts which could be developed, or are there other more appropriate policy measures which could be developed in assisting the island communities?).

7.12.21 There was also a view from HIE that Transport Scotland must ensure that each individual discount currently offered is compliant with State Aid legislation before any further research is carried out.

Definition of a Commercial Vehicle

7.12.22 Consultees across the board acknowledged that developing an effective definition of a CV is and always will be challenging. Various suggestions and points of view were put forward, although there was a general view that fixed rules based on length or other metrics enable users to work around these definitions at the margin.

7.12.23 Overall, there appeared a to be a strong body of support for Serco NorthLink's current approach of defining any vehicle engaged in a commercial activity as a CV and charging them accordingly (although Serco NorthLink suggested a move to classifying a CV as over 3.5 tonnes). It was acknowledged that this introduces a degree of subjectivity in that ticket staffs need to make a professional judgement on whether a van, for example, is being used for commercial purposes. The weakness of this approach was seen to be in smaller island communities where many people use a van or pickup truck as their personal as well as commercial vehicle. However, whilst an imperfect measure overall, this approach was seen as having potential and is in need of further research.

7.12.24 However, the majority of stakeholders noted that any immediate move away from the recently introduced 6m CV definition would be problematic and could only be undertaken over the longer term.

Fare Increases to Reflect Network Improvements

7.12.25 There was a broad consensus amongst all stakeholders that increasing fares to reflect network improvements is an unacceptable option and should not be considered further.

Loose Freight

7.12.26 The consultation question on loose freight was largely centred on the parcel traffic on the Ardrossan - Brodick and Wemyss Bay - Rothesay routes, although valuable submissions were received for other island groups and have been reported in this study.

7.12.27 There was a majority consensus amongst stakeholders that where a loose freight operation meets a need that cannot be economically satisfied in any other way, it should be retained. Examples included loose freight services in the Orkney and Shetland Islands and to the Small Isles.

7.12.28 Stakeholders explained that, on islands where a loose freight service runs alongside commercial parcel operations, further research is required to identify the need for such a service and the benefits it brings to the island in question. In addition, it was noted that care must be taken to ensure that loose parcel operations offered by operators are not in contravention of State Aid legislation.