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					Scottish Government Ferries Review

                   Steering Group Meeting
Paul McCartney | 14 September 2009
    Work Package

    Costs and Affordability

    Funding

    Fares

    Services and Routes




Paul McCartney | 15 September 2009
    Our Approach

            Based on STAG Appraisal Process
               Objective-led



          Problems and Issues
          Opportunities and Constraints
          Option Generation
          Option Assessment
          Generation of Key Questions that will form a
           basis for the Strategy




Paul McCartney | 15 September 2009
                   Cost and Affordability – Findings




Paul McCartney | 15 September 2009
    Requirements of the Brief

           Cost and Affordability
              Investigate means of improving the
               affordability of ferry services
              Consider the cost and affordability of ferry
               services in the context of public transport
               generally
              Consider how to make more efficient use
               of ferries resources




Paul McCartney | 15 September 2009
    Ferry Costs (1)
                                                           Subsidy (£m)

  CHFS                       CalMac                                42.0

  Northern Isles             Northlink                             32.0

  Shetland Isles             SIC                                   10.5

  Orkney Isles               Orkney Ferries                         5.6

  Gourock-Dunoon             Cowal Ferries                          2.3

  Gourock & Renfrew          SPT                                    0.7

  Aberdeen-N. Isles          Streamline                             0.6

  Highland                   Highland Council                   (est)0.3

  Argyll                     A&BC (incl concessioned            (est)0.3
                             routes)

  Sounds’ Barra/Harris       Comhairle nan Eilean Siar#            0.02

                             Total Operating Subsidy              94.32

  Harbour Facility Grants*   Scottish Government                   16.4

                             CMAL                                         ?

                             Total                               110.72

  Notes: Excludes RET, which started Autumn 08, and costs £22.5m over 3
  years (=£7.5m/yr average)

  *Excludes expenditure on harbours by local authorities

  #User subsidy for freight traffic                                           Source – WP1a Report

Paul McCartney | 15 September 2009
        Ferry Costs (2)

 Operators        Grant (£k)           Annual Pax    Annual      Annual Sub
                                                    Subisy per    per capita
                                                       pax       (Scotland)
A&B               £750 (est)            138,600       £5.41        £0.15

Cowal               £2,300              550,849       £4.18        £0.45
Ferries
CHFS               £42,000             4,533,215      £9.26        £8.16

NorthLink          £32,000              307,000      £104.23       £6.22

Orkney              £5,640              316,400      £17.83        £1.10

Shetland           £10,500              795,600      £13.19        £2.04

Total              £93,190             6,641,664    £154.11       £18.11

  Paul McCartney | 15 September 2009
    Key Findings

           Costs on the CHFS and NorthLink networks appear to
            be higher than industry standards
           High costs mainly driven by the ‘Major’ and
            ‘Intermediate Ferries’ (retail operations, high number
            of staff/crew, longer distances and more fuel)
           Costs in Orkney are also high (and rising relatively
            quickly) but are lower (and more stable) in A&B and
            Shetland
           Rising fuel costs are a threat across the board
           Complex tenders with little incentive deters outside
            interest
           Need for costly replacement of vessels and shoreside
            infrastructure



Paul McCartney | 15 September 2009
    Network Cost Breakdown - CFL

                                     - Relatively high crew
                                     costs
                                     - Fuel also accounts
                                     for a significant
                                     proportion of costs
                                     - Vessel lease fees
                                     significantly lower
                                     proportion than
                                     NorthLink – are CFL
                                     paying a market
                                     rate?




Paul McCartney | 15 September 2009
    Network Cost Breakdown - NorthLink

                                     - Graph does not
                                     include fuel
                                     - Lease costs very
                                     significant
                                     proportion of total
                                     costs
                                     - Hotel staff costs
                                     relatively large
                                     proportion of total
                                     crew costs



Paul McCartney | 15 September 2009
    Network Cost Breakdown – Orkney (1)

                                     -Wages, Fuel and
                                     Maintenance account
                                     for around 90% of
                                     Orkney costs
                                     - 20% maintenance
                                     costs reflect aging
                                     fleet
                                     - Lease costs low
                                     because OIC own the
                                     vessels and do not
                                     charge for their use




Paul McCartney | 15 September 2009
    Network Cost Breakdown – Orkney (2)

                                     -Orkney costs
                                     and trading
                                     subsidy have
                                     risen
                                     substantially in
                                     recent years
                                        - driven by a
                                        number of
                                        factors
                                        including fuel
                                        and wages


Paul McCartney | 15 September 2009
    Network Cost Breakdown – Shetland


                                     - Costs in
                                     Shetland are
                                     stable, with any
                                     recent rise being
                                     driven principally
                                     by fuel costs
                                     - Reflects low
                                     cost of
                                     standardised
                                     network



Paul McCartney | 15 September 2009
    Crew Costs

           Crew on CHFS and NorthLink vessels serve
            two weeks on / two weeks off
              as crew are vessel based, cannot easily
               tailor crew numbers to demand
              working hours legislation limits vessel
               operating hours – restricts timetable
           Above average T&C’s / pension / overtime /
            redundancy etc
           Net loss on retail activity




Paul McCartney | 15 September 2009
    The Impact of TUPE

           TUPE ensures the protection of all staff in the
            event of a ‘transfer of undertakings’ – in the
            context of ferries, a change of operator via a
            tender
              valuable policy for protecting staff from
               unfair discrimination
              ensures retention of skilled staff


           But…
              preserves high cost base
              fixes costs within the system
              limits scope for innovation



Paul McCartney | 15 September 2009
    Fuel

           Fuel prices have risen rapidly in recent years and will
            continue to do so:
              fuel is the 2nd largest element of CFL’s costs
               (around 30%)
              also a significant element of NorthLink and Orkney
               costs
              Shetland – fuel costs risen by 181% between
               2003-2008

           Conversion of large vessels to IFO will help reduce
            costs in the short-term, but only delays the problem
              IFO has relatively greater negative environmental
               impacts


Paul McCartney | 15 September 2009
    Vessel Specification

           Vessels are specified for high passenger carryings –
            historical issue but mismatch of car / passenger
            capacity
              Drives up crew requirements and costs
                                                                     Route

                               Ardrossan   Kennacraig    Oban -        Largs -   Wemyss     Oban
                                - Brodick     - Islay    Craignure     Cumbrae     Bay -     – Coll
                                                                                  Rothesay   / Tiree


                                                          Passengers


                   Peak         August      August       August         May      August     August
                    Month

                   Average
                    Passeng
                    er           28.6%        24.3%       24.7%         18.8%      18.9%     25.2%
                    Utilisati
                    on

                                                           Vehicles


                   Peak          May        August       August        August    August     August
                    Month

                   Average
                    Vehicle      66.8%        80.3%       74.9%         46.7%      37.4%     36.6%
                    Utilisati
                    on




Paul McCartney | 15 September 2009
    Rationalisation? – Ports and Routes

           Costs could be reduced by rationalising the
            number of ports and routes served
              Approach could be to concentrate on hubs
               like Oban or Fairlie – improving facilities;
               or
              Could focus on shortest sea crossings

                  Slow vessels down



           Could be unpopular, although highlighting
            the benefits may minimise the impact



Paul McCartney | 15 September 2009
    Capital Costs

           Need for significant investment in vessels, ports and
            harbours
              average age of vessels is rising, with a number of
               ships approaching 30 years old
              Ports and harbours also require significant
               investment – much of the shoreside infrastructure
               is already past its nominal ‘expiry date’
              Need to modify ports and harbours if system is to
               be ‘opened up’?

           Insufficient public funds available to meet these needs
            at present
           Potential to reduce costs through more careful design
            process and multiple orders

Paul McCartney | 15 September 2009
    Tender Specification

           Complex tenders with little incentive deters
            outside interest
              Current tender is restrictive and offers
               little scope for innovation
              CFL / NorthLink bid costs met by SG
               (illegal State Aid?)
              CFL / NorthLink will always win as their
               bid only requires a break-even return
              Lack of incentive to innovate – virtually all
               additional revenue ‘clawed back’ by SG



Paul McCartney | 15 September 2009
                              Funding – Findings




Paul McCartney | 15 September 2009
    Requirements of the Brief

           Funding
              Define options for the future funding of
               ferry services
              Define the criteria under which the
               Scottish Government, LAs and other public
               bodies may fund particular services
              Assess the impact of different funding
               strategies on aims of the Review and the
               cost to SG
              Identification of additional funding
               streams available for ferries


Paul McCartney | 15 September 2009
    Public Sector Funding Constraints

           Current ferries budget insufficient to meet
            investment needs and rising ops costs
           This is set against severe funding constraints
            in the public sector at present
              UK Govt and SG have made it clear that
               spending cuts can be expected
              LAs and RTPs budgets are likely to be cut



           Ferries funding is not ring-fenced – may
            potentially be reallocated to other more high
            profile spending areas – health / education


Paul McCartney | 15 September 2009
    Funding Structure

           Considerable inconsistency in ‘who funds
            what’
              SG, LAs, RTPs, private sector, local
               communities, charities and voluntary
               sector all involved in funding
              Lack of Scotland-wide strategic focus




Paul McCartney | 15 September 2009
    Borrowing Powers

           SG, and thus CMAL, does not currently have
            borrowing powers
           LAs and RTPs can borrow from a number of
            sources (eg Public Works Loans Board & Euro
            Investment Bank)
              But borrowing constrained by what they
               can pay back / revenue streams
           Current administration does not favour PFI
            and ferries a low priority for SFT




Paul McCartney | 15 September 2009
    Future Funding Opportunities

         Reform current set up
         Scottish Futures Trust
         Reclassification of CMAL
         Privatisation of assets
         CMAL – piers and harbours only
         Private sector bring vessels


            Each option has risks and benefits, but public
            sector may ultimately have to pay in some
            way for assets and operations


Paul McCartney | 15 September 2009
                                Fares – Findings




Paul McCartney | 15 September 2009
    Requirements of the Brief

           Fares
              Exploration of options for rationalising
               fares structures
              Identify how changes to fare structures
               can support remote and island
               communities




Paul McCartney | 15 September 2009
    Key Findings

           The current fare system is complex and based on
            historical evolution
               Some islands are at a disadvantage when
                compared against similar communities
           Fares bear little relation to costs or revenue
            maximisation
           Fares are generally perceived to be too high on the
            islands
           Initial analysis suggests a 10% reduction in fares
            appears the ‘optimal’ solution
               Grows revenue

               Grows patronage

           RET offers the greatest rise in patronage but largest
            loss of revenue

Paul McCartney | 15 September 2009
    Contribution to Objectives

     Working Objectives                                             Test 1:    Test 2:         Test 3:         Test 4:       Test 5:        Test 6:        Test 7: RET
                                                                    Reduce     Increase        Reduce          Increase      Increase All   Decrease All
                                                                    Resident   Visitor Fares   Visitor Fares   Visitor Car   Fares          Fares
                                                                    Fares                                      Fares

     Contribute to increasing the productivity, competitiveness                                             o                                       
     and consequently, the wealth of businesses and people on
     our island and remote rural communities
     Contribute to a reduction in regional disparity and more                                               o                                       
     balanced growth across Scotland
     Contribute to improved access to employment, education,                  o               o               o                                        
     business, leisure and health
     Contribute to improved access to tourism                       o                                                                            
     Contribute to sustainable population growth in our islands                                             o                                      
     and remote rural communities
     Contribute to the Government’s climate change policy to                  o               o               o                                       
     reduce greenhouse gas emissions by 50% by 2030 and 80%
     by 2050
     Make the minimum possible impact on the local and global                                                                                      
     environment
     Support improved safety of journeys and enhance the            o          o               o               o             o              o              o
     personal safety of those using the services, including staff
     Support the use of sustainable, modern, efficient ferry        o          o               o               o             o              o              o
     services responsive to local needs and appropriate to the
     requirements of those using them

     Be cost effective, providing value for money for public                                                                                         
     investment




Paul McCartney | 15 September 2009
    Key Strategic Questions

           Should fares be set to:
              provide optimal vessel loadings
                  encourage travel within any given existing or
                   future capacity
              maximise revenue / minimise subsidy?
           Different fare policies meet different strategic
            objectives
              Priorities?
              a common, standardised fare system?
              a fare system that may result in ‘winners and
               losers’?
              focus fare initiatives on a specific user groups – eg
               residents, tourists, freight etc?
           How much flexibility within Tender Specification?


Paul McCartney | 15 September 2009
    Services and Routes




Paul McCartney | 15 September 2009
Principal Challenges –
evidence from the Household Surveys


                                                                                       Comparative Satisfaction with ...
              Large Communities   Small Communities   Peninsula Communities   Others
                                                                                         ...Number of days the ferry runs

  Satisfied
                                                                                         ...Reliability of sailings


                                                                                         ...Timings of first outward journey


                                                                                         ...Timings of last return journey


                                                                                         ...Winter Timetable


                                                                                         ...The level of fares


                                                                                         ...The length of sailing time


                                                                                         ...Frequency of sailings


                                                                                         …Punctuality of arrival/departure


                                                                                         …Accessibility


                                                                                         …Quality/Comfort onboard

      Less
  Satisfied                                                                              ...Integration with other transport modes




Paul McCartney| 15 September 2009
Key Statistics –
further evidence from the Household Surveys

                                                                                                                                                  Community level
                        Reasons for Travelling                                                     Modes Used


                                                                                                                                              
                                  Commuting to
                                                                                                    Car
                                     w ork /                                                Air
                        Other                               Employer’s                             0.0%                      Public
                                   education                                              0.8%
                        1.7%                                 business                  Other                               transport
                                     5.0%
                                                                                       0.0%                                   0.0%



                                                                                                                                                  data
                                                               4.6%

    Shopping
     27.8%                                            Short-break /
                                                        Holiday
                                                         9.8%




       Health related                          Visiting
           8.3%                               friends /
                                             relatives /                                                   Ferry
                                            other leisure                                                 99.2%
                                               42.9%


                                                                                                          Other
         Modes Used to/from Ferry Terminals


                                                                                                                                                  Why do people travel?
                                                                                                          Walk all the way
       100%
        90%                                                                                               Bicycle
                                                                                                                                              
        80%
                                                                                                          Taxi
        70%
        60%
        50%
                                                                                                          Train
                                                                                                                                                 What modes do they
                                                                                                                                                  use?
                                                                                                          Bus / Coach
        40%
        30%                                                                                               Car / Motorbike (parked at
                                                                                                          terminal)
        20%
                                                                                                          Car (dropped off/picked up)
        10%
           0%
                                Journey start                         Once disembarked
                                                                                                          Vehicle (taken onto ferry)
                                                                                                                                                 What is most
     Importance, Satisfaction and
   Likelihood of Change relating to                  0%     10%       20%    30%    40%      50%    60%      70%     80%      90%      100%       important to them?
           ...Number of days the ferry runs

                                    ...Reliability

         ...Timings of first outward journey

            ...Timings of last return journey
                                                                                                                                                 What causes them
                            ...Winter Timetable

                            ...The level of fares
                                                                                                                                                  greatest
                 ...The length of sailing time

                        ...Frequency of sailings
                                                                                                                                                  dissatisfaction?
  ...Integration with other transport modes

                                                            Importance             Satisfaction            Would Change if Improved




Paul McCartney| 15 September 2009
    Where do people travel?
    Evidence from household survey




Paul McCartney | 15 September 2009
    Baseline –
    what is currently being provided?

                                           What sort of service
                                            does a community
                                            currently have?

                                           From this identify
                                            positive and negative
                                            experiences –
                                            timetables, vessels,
                                            socio-economic needs

                                           Relate this to the
                                            levels of satisfaction in
                                            the Household Survey




Paul McCartney | 15 September 2009
    Index of Need –
    which communities are most reliant on ferries?

                                         Analysis of
                                          community
                                          accessibility to
                                          services

                                         Employment

                                         Education

                                         Retail



                                         Some communities are
                                          more reliant in ferry
                   Index of Need
                                          links than others


Paul McCartney | 15 September 2009
    What is happening now?
    Other statistical evidence

                                 Growth 1999-2007                                           Identify existing trends –
    Gourock-Dunoon
         (CM)
                                                                                             where is growth taking
                                               Wemyss Bay-                                   place?
                                                Rothesay

                                                      Largs-Cumbrae
                                                                                            Analyse commercial data
                                                           Ardrossan-
                                                            Brodick
                                                                                             (retail sales, cost base,
                                                                        Gourock-Dunoon
                                                                             (WF)
                                                                                             types of traffic carried)

                                                                                             Compare support for
     -10%     -5%       0%      5%     10%          15%     20%          25%      30%
                                                                                         
                                                                                             alternative modes
                           Subsidy per Passenger (2007)

    £500.00                                                             £464.55             Distribution of subsidy –
    £400.00                                                                                  is it proportionate to
    £300.00
                                                                                             population? Need?
    £200.00
                                                                                             Opportunities?

                                                                                             How do fares compare
                                           £81.82
    £100.00
                     £12.42
                                                                                         
      £0.00
                     Ferries         Air Discount Scheme        PSO to Air Services
                                                                                             between routes?


Paul McCartney | 15 September 2009
Peaks and Troughs in Demand

                                                Seasonal Distribution of Demand
                                                  (Aberdeen - Lerwick, 2007)                                                        Demand is never
                                                                                                                                     evenly distributed
   16000




   14000
                                                                                                                                     across sailings
                                                                                                                                    Varies by time of day,
                                                                                                                                     by day of week, by
   12000




   10000
                                                                                                                                     month of year
                                                                                                                                     Catering for the peaks
           A verage P assengers Carried



                                                                                                                                 
                                                                                                                                     can be very costly
   8000    A verage P assengers Carried
           (o utwith Summer)




   6000

                                                                                                                                    For example:
                                                                                                                                     Aberdeen-Lerwick
                                                                                                                                     peak passengers (July)
   4000




                                                                                                                                     double the average,
                                                                                                                                     and almost four times
   2000




      0
           January     February    M arch   A pril   M ay   June    July   A ugust   September   Octo ber   No vember December
                                                                                                                                     the lowest (February)
                                             Passengers                        Cars




Paul McCartney| 15 September 2009
    Rebalancing Demand and Supply?

                                        Community level
                                         analysis


                                        Base passenger demand =
                                         current patronage X need
                                        Tourism
                                        Commercial Vehicles


                                        Supply = total capacity


                                        Regressed and used to
                                         predict optimum capacity


Paul McCartney | 15 September 2009
Consultation –
summary of issues from public meetings around the country

          Example – issues raised and potential solutions suggested
           Timetables

           Inability to commute from islands to employment hubs on the mainland on a daily basis
                                                                                                             Timetables should be revised and designed to best meet the needs of the island community rather
                                                                                                             than the mainland / tourists. This would include:
           Seasonal variations in the timetables mean that employment on the mainland is not
           sustainable all year round                                                                             providing the ability to commute where the crossings are short enough to allow this;
                                                                                                                  ensuring there is the provision for day and / or weekend trips (dependent upon distance) for
           It is not possible to make a day trip, and in some cases weekend trips, from the islands to the
                                                                                                                    islanders to access the main towns on the mainland;
           mainland
                                                                                                                  ensure the first and last sailings are at better times, most likely earlier starts and later

           Timetables also considered to be complicated and confusing, with too many variations in                  finishing;

           sailings                                                                                               better frequency, perhaps introduce a minimum standard – ie on crossing per day, or a
                                                                                                                    minimum of four crossings per week, etc;
                                                                                                                  more standardisation of the timetables, so that sailing times are the same each day – this
                                                                                                                    would also help interchange potential and connectivity with the public transport network;
                                                                                                                  flexible times / on-demand on the very short sailings;
                                                                                                                  introduce overnight sailings for both freight and passengers on longer crossings; and

                                                                                                                  faster crossing times – probably only attainable with new vessels.

           Fares and Booking

           No standard fare structure across routes – appears inequitable
                                                                                                             Requirement for a simplified, standardised and transparent fare structure which reflects current
                                                                                                             needs. It is not clear however, if a further roll out of the RET structure would be sufficient, or if
           Viewed as too expensive for both locals and freight.    If freight becomes too expensive, the
                                                                                                             some other variation is necessary.     The RET has issues with removing concessionary fares and
           islands can essentially be cut off
                                                                                                             increasing the cost for freight, thereby having negative affects on the businesses and economy on
                                                                                                             the islands. Further discussion is provided in the separate report on fares.

           No discount for ‘lifeline needs’
                                                                                                             Some think all users should benefit from lower fares, however, others feel that only the local
                                                                                                             residents should be eligible for lower fares.   The Air Discount Scheme was suggested as a model for
                                                                                                             subsidised residents’ fares.

           Inconsistencies in booking arrangements across the network
                                                                                                             An improved and standardised booking system is needed for both freight and passengers. This could
                                                                                                             potentially be one central / national system

           Vessels

           Reliability – particularly in poor weather
                                                                                                             Audit of current fleet

           Age and condition of the fleet                                                                    Maximise use of these assets, both the vessels currently in service, or future vessels which will be
                                                                                                             purchased and put into operation

                                                                                                             Ensure that new vessel orders will be sufficient to perform in prevailing route conditions

           Inconsistencies in onboard facilities
                                                                                                             Thorough audit of what facilities are required for different types and lengths of service. No sense in
                                                                                                             loading a 15 minute crossing with facilities, however a three hour crossing requires more. Should be
                                                                                                             standardised across the network.

           Disability Access
                                                                                                             Vessels should incorporate disabled facilities onboard and should be designed with accessibility in
                                                                                                             mind

           Vessels working more than one route
                                                                                                             Vessels should be dedicated to their route.     The vessels also need to be suitable to the crossing
                                                                                                             conditions and reliable, with sufficient relief vessels available.   Vessel capacity should also be
                                                                                                             designed to match demand on their dedicated route.




Paul McCartney| 15 September 2009
Community Fact Sheets –
bringing the whole picture together




Paul McCartney| 15 September 2009
    Principles to be Adopted

           Location of overnight       Review and rationalise
            port                         onboard retail facilities
           Crews live onshore          Reduce fares
           Later sailings              Improve/ co-ordinate
                                         information
           Timetable reflects
            demand/need                 Improved check-in/
                                         booking process
           Reinforce growing
            routes                      Step change in
                                         integration
           Standardise timetables
                                        Tackle accessibility
           Consider freight             challenges
            requirements in vessel
            specifications


Paul McCartney | 15 September 2009
Some of the Implications

       Change in fleet structure – move to smaller vessels
       Reduction in ports/harbours required
       Tailoring supply/demand
            Seasons
            Days
       Country-wide fleet management
            Ferry Replacement Fund
            Co-ordinated dry dock programme
       Tackle restrictive practices


       Target – sufficient savings to establish a Ferry
        Replacement Fund and support other
        improvement aspirations

Paul McCartney| 15 September 2009

				
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