On Thursday night, 11th July, the Dunoon-Gourock Ferry Action Group held a public meeting in the Queen’s Hall in Dunoon. The agenda focused on the recently published report on the feasibility of a state subsidised passenger service on a two boat operation also offering an unsubsidised commercial vehicle carrying service between the town centre destinations on this route.
This service would replace the existing state subsidised passenger ferry service between the Dunoon and Gourock town centres and would be in competition with the successful and unsubsidised private sector Western Ferries vehicle and passenger service between the outskirts of both town.
The feasibility study sees the route as essentially providing a commuter service, with no serious prospect of market growth.
Thursday night’s meeting was led by the committee of the Action Group alone. There were no apologies given from the invited Deputy First Minister Nicola Sturgeon, who chairs the Steering Group on the town centres service, or from the representative of the consultants who produced the study.
In the audience were local MP, Alan Reid and Dunoon Councillor and former Council Leader, Dick Walsh. An apology was given from Councillor Gordon Blair, who had given the committee to understand that he was at a council meeting. With the council in recess at the moment, in the middle of its ongoing upheavals and the plotting continuing, what Councilor Blair, a bit of a player in the stushie, was doing at such a meeting was of passing interest.
The meeting, with an audience of around 90, was very well chaired by Susanna Rice, chair of the Action Group’s committee. Lucid, rational and easy-on-the-ear audible, she kept the session moving through its agenda, made manged time for questions from the floor and kept that on track. At one point committee member, Ken Barr and a couple of the audience took the discussion down a tunnel but were quickly returned to the surface in a reminder from the chair of the focus of the meeting – completed in under two hours.
The substantial majority - upwards of 80% – of the audience was beyond working age. This means two things:
- the campaign is a hobby – albeit it a committed one – by those peripherally affected by what is recognised by all concerned to be a commuter service;
- those campaigning for it are unlikely to be frequent users of the commercial vehicle component of the desired service. It is not unreasonable, though, that people a little less than secure on their feet would be unnerved by the skittishness of the MV Ali Cat passenger ferry in heavy weather; and by boarding from the linkspan rather than from a pontoon – a development which has been offered and rejected. They would be better off with a passenger ferry service they were happy with.
Setting the scene
From the chair, Susanna Rice started the meeting by reading a single sentence from its conclusions: ‘The study demonstrates that, on assumptions made, a passenger and vehicle ferry could be feasible between the town centres.’
The emphasis above on ‘could’ is ours and is germane. This was the best that the feasibility study could offer and it arises from an admitted situation where the consultants had chosen not to factor in any competitive response from Western Ferries. They did, however, mention that any one of several such responses Western might make could [Ed: Our emphasis again] swing the picture to one of non-viability; and that Western had told them that it would do everything necessary to protect its position.
Ms Rice said – with honest transparency – of the report’s conclusion which she had read out: ‘This is a very important step. Without this, we would have had nowhere to go.’
She is absolutely right.
This was the opportunity open to the Scottish Government to put this long-running campaign to rest by allowing the study to show the reality – that all the facts stack against any realistic possibility of this service being offered -either by the public or private sectors – let alone succeeding.
The government chose to reassure weakly rather than tell the truth. This leaves them and the consultants whom they strategically instructed in the production of this report, carrying a weight of responsibility for deception . As we reported the day after the study was published, key material submitted during the study process was deliberately excluded from the report, as it strongly challenged even the weakly positive conclusion.
The Scottish Government’s purpose was to protect all possible votes in favour of Scottish Independence in next year’s referendum by using this study to give faint hope alongside enough understated reality to support an eventual decision not to proceed.
This is profoundly dishonest and the consultants who clearly leaned as instructed, can only be professionally embarrassed by a ‘study’ which is nothing more than a selective set of wildly optimistic assumptions set to produce just enough hope for the campaigners in its outcome.
This study deeply damages the credibility of the consultants, MVA. They clearly bit their tongues and delivered what they were told to deliver, rather than making any genuine assessment of feasibility. This – the most generous accounting for what MVA have delivered – underlines the true utility of ‘consultants’ to their paymasters.
The business of the meeting
The meeting decided that its immediate aim was to command the assignment of CMAL’s vehicle and passenger ferry, MV Coruisk, to the town centres route for the coming winter – and to be retained there on an extended trial. Coruisk is currently leased to Caledonian MacBrayne for the Mallaig routes in the small Isles, as part of its Clyde and Hebridean Services contract, which now runs until 2016.
The intention is that Coruisk would run a passenger only service.
This ignores the fact that:
- Coruisk’s fuel costs would be a lot higher than either of the current Argyll Ferries passenger boats;
- that, at a higher Gross Tonnage, its berthing dues would be much higher;
- that its height above the water puts its own bad weather performance under question;
- that the steepness of its internal passenger stairs might be difficult for passengers with buggies or mobility problems. [It does have a small lift.]
The major issue here is that the cost of operating Coruisk would put Argyll Ferries beyond its contract price – and if the government retrospectively changed that price, the three competing bidders for this service back in 2010-11 would have cause for legal challenge. None of these matters were mentioned at the meeting.
The meeting discussed:
- harbour charges and ways of getting them reduced – to impact favourably on the service’s attractiveness for potential operators.
- fuel costs on the town centres route, relative to western Ferries;
- the extent to which they saw the report’s revenue estimates as being ‘conservative’.
- vessels and operators – largely accepting Neil Kay’s advice that private finance for newbuild boats and a private sector operator were the preferred outcomes to aim for;
- the proposition that a commercial vehicle service also offering a subsidised passenger service would earn enough from carrying vehicles to reduce the public subsidy on passengers.
This last is a misdirection. With a private sector operator contracted to run the proposed service, any surplus from the vehicle element is profit for the operator. It is certainly not returned to the government to reduce the passenger subsidy. This is how a wholly public sector service might operate but the Scottish Government has neither the appetite for this nor the purse to support setting it up.
Three strategies were agreed ‘to make the Scottish Government recognise its obligation to deliver the boats’ for the proposed service. These were:
- that supporters should submit formal written complaints in volume on the Argyll Ferries service;
- that the Action Group committee should organise a petition and/or e-petition in support of the proposed service;
- that the Action Group committee should organise campaigners and coaches for direct action at the Scottish Parliament around mid-September 2013.
The feasibility study, as we pointed out in our evaluation of it, conducted no semblance of the core necessity for a needs analysis for the desired additional vehicle service; nor did Thursday night’s meeting mention any issues of need.
In September 2012 For Argyll conducted its own analysis of the current service provision – Research reveals shock insights into reality of dunoon ferry service provision for the Dunoon-Gourock route. This worked from vessel capacities, from published timetables and from published Scottish Transport statistics on route carryings. These were from 2010, then most recent available.
This analysis demonstrated that the current Argyll Ferries two-boat town centres passenger service together with the Western Ferries four-boat vehicle and passenger service between the outskirts, there was an overall overcapacity for foot passengers of 83.32%.
This represents a 69.78% overcapacity if all passenger demand was to be supplied by Western Ferries alone; a 62.68% overcapacity if supplied by Argyll Ferries alone; and a 67.97% overcapacity on the basis of supply by the former Cowal Ferries vehicle and passenger service alone. [Ed: Argyll Ferries passenger service replaced the Cowal Ferries combined service in 2011.]
In terms of vehicle carryings, we showed that in 2010-11 there was an annual demand for 625,400 car movements – against an available capacity of 1,200,000. There was also a demand for 36,500 movements of commercial vehicles and buses, each of which takes more deck space than a car.
This indicates that the vehicle shifting capacity delivered by Western Ferries is comfortably capable of meeting demand and growth – with more capacity to come when its two new and judiciously larger boats come on stream.
The Argyll Ferries passenger service delivers commuters direct to the Gourock railhead, with a train service on into Glasgow and intervening points. Few commuting in this direction need to take a car on the town centres ferry.
Assuming vehicles to be coming from the least convenient starting point in each case, they drive an additional two miles or so to the Western terminals. It is arguable that vehicles disembarking at McInroy’s Point for Gourock are advantaged over vehicles disembarking at the Gourock ferry terminal by having road priority through the town in rush hour. The ‘Give Way’ junction with the main road from the long road exit from the Gourock ferry terminal is an easy choking point in rush hour traffic.
In terms of daily sailings, the two current services together provide Dunoon with:
- 146 sailings daily, 73 in each direction, from Monday to Thursday. 30 in each direction are from the town-centres passenger-only service and 43 are from the Western Ferries vehicle and passenger service.
- 164 sailing daily, 82 in each direction, on Fridays. 30 in each direction are from the town-centres passenger-only service and 52 are from the Western Ferries vehicle and passenger service.
- 152 sailings daily, 76 in each direction, on Saturdays. 30 in each direction are from the town-centres passenger-only service and 46 are from the Western Ferries vehicle and passenger service.
- 110 sailings daily, 55 in each direction, on Sundays. 15 in each direction are from the town-centres passenger-only service and 40 are from the Western Ferries vehicle and passenger service.
Add the picture from these sailing frequencies to the figures for the current overcapacity provided to Dunoon and the actual carryings recorded on a route recognised in the feasibility study to have little room for overall market growth.
This could not demonstrate more sharply that there is no need whatsoever for a vehicle and passenger service to replace the current passenger service on the town-centres route.
What the campaigners are talking about is their wish for such a service – a completely different matter, especially when public money is involved and governments are required to put ‘best value’ at the top of the list of criteria in state service provision.
The state owned CMAL [Caledonian Maritime Assets Ltd] owns and operates most of the piers and harbours in the west of Scotland mainland and islands. The rest are owned by local authorities and private operators.
Owners impose Harbour Charges on users – made up of Pier Dues, paid in respect of each passenger and each car carried; and of Berthing Dues paid in respect of the Gross Tonnage of the boat concerned, regardless of carryings.
The issue here is that CMAL substantially raised its Harbour Charges from 1st April,
The rise in CMAL’s harbour charges was effectively announced in Transport Scotland’s Scottish Ferries Review [Page 11 of the pdf version]. Transport Scotland said that they were minded to make piers and harbours self-funding, charging fees to cover not only operating costs but the building up of financial reserves to cover reinvestment. This was seen as removing the need for grants for such purposes from the Scottish Government.
However, Transport Scotland said, in the same paragraph: ‘The cost to ferry operators of harbour dues would rise which would lead to increased subsidy payments by the Scottish Government’.
The intention behind this is likely to have been ill-expressed here in the Review, since the government does not subsidise all ferry operators but simply those providing lifeline services. In their case the government’s expressed intention is to subsidise lifeline service operators against the additional harbour charges.
The new funds for reinvestment in harbours would come from private sector commercial ferry operators and other commercial maritime users of piers and harbours, who would face significantly higher harbour charges. The Review recognises that this change would see ‘the user providing more of the funding at the point of use’.
In the case of the proposed service for the Dunoon and Gourock town centres, much of the harbour charges due would be born by the commercial vehicle carrying element of the service. The cost of pier dues for passengers would be factored into the subsidy for the passenger service. The cost of pier dues for vehicles would contribute directly to costs and to fare levels; as would the greater share of the berthing dues.
The passenger service’s share of berthing dues would have to be calculated on a basis relating to the current gross tonnage of the passenger ferries employed by Argyll Ferries on this route. The rest – with the greater tonnage of an appropriate vessel directly due to its vehicle carrying capacity, would be attributable to the commercial operation.
The harbour charges applying produce a situation where, according to the feasibility study and its assumptions, the pier and berthing dues chargeable under the most likely Scenario 1 model [static demand] amount to 71.4% of the total incremental costs of running the proposed combined service.
The Action Group hope to argue successfully for substantial discounts on these charges, which would clearly improve the potential profitability of the service, all other factors being equal.
However, the killer fact in the competitive situation here is that Western Ferries owns both of its own linkspans and so has no harbour charges to pay to a third party.
For the obvious reason that anything is more than nothing, this means that no operator on the town centres route – however discounted a rate they might hope to negotiate on harbour charges with the owners concerned, could be in a position to gain market share by undercutting Western’s vehicle fares for very long. They would do this at the cost of steadily losing money at a rate that whatever market share they would attract could not sustain.
The Western Ferries route is 2 miles. The town-centre route is 4 miles. For the proposed service to match Western’s timetable – which the study accepts it would have to do – its boats would have to travel twice as far, twice as fast.
This of course impacts substantially on fuel costs, although in one of the obvious deceptions delivered by the feasibility study, it declared that there would be very little difference in the respective fuel costs.
In fact, with older boats less fuel efficient, industry experts have estimated for us that the CMAL ferry, MV Coruisk, in doing the 14-15 knots the study envisages as necessary to make the 4 mile passage in the necessary 20 minutes, would burn twice as much fuel on her own in a day as the total fuel usage of all four Western Ferries boats, which do around 8 knots to make their 2 mile crossing in 20 minutes.
There would also be safety issues involved here, with the proposed service travelling at almost twice the speed right across the path of the Western Ferries shuttle service. Does Clydeport, the statutory harbour authority, not impose a speed limit of 12 knots.
More fuel efficient newbuild boats – as Western’s are and will be – would reduce the extent to which the proposed service would inevitably cost more in fuel burned to make the timetable – but its fuel costs would always be substantially higher.
Revenue estimates and market share
A key factor in estimating the commercial viability of the proposed service is the market share it could hope to attract from what is recognised essentially to be a commuter market with no great market growth potential.
The baseline figure in the most likely of the three scenarios considered – continuing static demand – assumes a 56% market share for vehicle carrying. There is no secure basis for this figure. It appears in Paragraph 7.2.29 of the report with no more foundation than the hat from which it has been pulled.
There are a range of assumptions governing market share, some of which have substance and some do not.
The assumption that you can double your market share by running two boats may be mathematically neat but does not follow.
Competitive pricing does impact on market share. It can be shown in operation when Cowal Ferries was running a subsidised passenger and supposedly unsubsidised vehicle service between the two town centres, yet Western Ferries, despite its peripheral location, retained its pronounced market share advantage by dint of the attractiveness of its fares structure and ticketing. [And, as admitted in November 2012 by our local MSP, the vehicle element of this service was indeed illegally subsidised by the Scottish Government.]
However, competitive pricing is directly related to costs, to current performance; and aspects of it, where the public sector is involved, are constrained by competition law. There are limits beyond which a service cannot survivably cut its prices.
Here we are looking at a situation where the proposed service:
- will have higher operating costs through harbour charges and higher fuel costs alone;
- will be starting from scratch against a well established and successful private sector competitor, dominating the market for vehicle carrying and holding a substantial share of the market for passengers;
- will have to take a 42% market share of vehicle traffic just to break even;
- will be unable, in the required forensic accounting, to hide any illegal subsidy for the commercial vehicle element of the service, as the previous state service got away with;
- will be open to immediate challenge under competition law at any indication of a situation where the receipt of state subsidy enables a destructive commercial challenge to an existing and unsubsidised private sector operator.
Private finance and private sector operators
At the Thursday night meeting, Neil Kay raised the possibility of private finance for new build boats, pointing to the Royal Bank Of Scotland buying the new ferries for the Northern Isles Service and leasing them to the service operator of the day. He noted that the building of the new Stornoway ferry had been financed by Lloyds Bank.
The problem here is that in the case of Stornoway ferry, for example, Lloyds had a nine year guarantee on their investment from the Scottish Government and from CMAL. There was absolutely no risk to the bank.
In the case of the Dunoon-Gourock proposed service, the Scottish Government would not legally be able to guarantee the cost of building a vessel with a commercial focus.
Moreover, tendering processes are much lengthier where PFI models are concerned.
Before we leave this topic it has to be noted that the figure of £6 million the study puts on the cost of each purpose newbuild vehicle and passenger ferry has been received as risible by the industry.
The possibility of private sector operators being interested in bidding for a service like that proposed is highly unlikely.
Any reasonably experienced industry operator would see through the omnipresent flaws in the feasibility study at once. They would recognise the lack of a foundation for the assumptions on market share. They would know that the assertion of no real difference in fuel costs between the proposed and Western’s services is nonsense. They would quickly grasp the immense commercial advantage in Western’s ownership of its own linkspans; and they would know just what a headlock that puts on any competitor contemplating a price war to take market share.
There is no history of private sector interest in offering a commercial vehicle and subsidised passenger service on the town centres route. When the tender won by Argyll Ferries in 2011 was out there, with an open invitation to any bidder to offer a commercial vehicle service alongside the subsidised passenger service, of the four bidders, only Western Ferries submitted such an offer.
During this feasibility study, operators told the consultants that they were not interested in the proposed service, a matter excluded from their report, even though consulting potential operators was a part of the formal remit of their study.
At Thursday’s meeting, Neil Kay spun this by saying that the operators had told the consultants that they would wait until they saw the report before declaring an interest. ‘What operator would reveal his hand early?’, he asked.
Were this to be a credible excuse, the experience of the Argyll Ferries tender was exactly the point for any interested operator to declare their hand – and they had nothing to declare.
Western Ferries has put its own money into the successful, flexible and consumer-responsive service it runs; into the building of two new boats that will come onstream in the near future; and into the purchase and development of its own linkspans.
It is also the possessor of a well earned reputation as the most reliable ferry service anywhere on the Clyde; and of a large and sound base of goodwill with its service users and with other transport businesses.
In its financial modelling, the feasibility study took no account of the value of that performance record or of that goodwill in protecting Western’s market share.
Western Ferries’ Managing Director, Gordon Ross is arguably the most knowledgeable person in Scotland on the ferries industry. With an interesting background as a highly trained professional accountant, a fierce commitment to Western Ferries and a well-tuned strategic commercial intelligence, he is another factor of Western’s success the feasibility study had no means of taking into account.
There can be no question that Western would fight its corner in any situation whose declared purpose is to attempt to take its vehicle market share by using the associated comfort cushion of a state subsidised commuter foot passenger service direct to the Gourock railhead, for which there is known and certain demand.
The Action group said on Thursday night that they had asked the consultants what was the highest level of subsidy for the passenger service that might be proof against legal challenge. The answer was £3 million per annum. Coincidentally, the service subsidy envisaged by the feasibility study embraces that very figure.
The risks for Dunoon of the competitive scenario
Consider the fact that the overall market here is one the consultants feel has little real potential for growth.
This means that any new entry service can only hope to survive by taking away the business of the existing operator. In a bitter commercial contest, this could leave Dunoon with two vulnerable duplicated services.
A partially state subsidised service in this context is open to an immediate challenge under competition law on those terms alone – supported by the evidence of this feasibility study itself, which actually talks, almost lasciviously, of the desirability of Western Ferries being forced into ‘retrenchment’.
Consider the certain higher costs that the proposed service would unavoidably experience on its unsubsidised commercial vehicle component, in higher fuel costs and in higher harbour charges.
Consider the legal constraints surrounding the development of the new service.
Consider the infinitely stronger market position of Western Ferries at the point of entry of the proposed new service.
Consider that the driving force for the proposed service is from a population sector which, as non-commuting, would not be a major user of the town centre vehicle service.
Now consider a scenario where a private operator has accepted the judgment of this study and has successfully bid to offer a two-boat combined passenger and vehicle service on the town centres route, with the sweetener of £3m per annum as a state subsidy on the passenger element.
The operator is coming in as a newbie against a copper-fastened existing service. The study says that if he takes anything below an average 0f a 42% per annum market share of vehicle carryings across 15 years in the most likely static demand scenario, his service will not be financially viable.
With Western’s service record, goodwill and established travel habits, it could be five years before he gets within dreaming distance of a 42% break-even market share in this context. He would then have to rocket his market share exponentially over the last ten years to hit this average break-even figure of 42%.
He’s not going to hang around for that long.
If potential performance isn’t there by mid year two, our hypothetical newbie on the town-centres route just might think about giving it one last year. If he did, we doubt he’d stay to see the end of that year unless there was a miraculous turnaround.
No one these days can afford to lose this sort of serious money against operating costs that stay relentlessly steady, little affected by scant carrying of commercial traffic.
He might give the challenge one last shot, going to the Scottish Government and asking for some more help in subsidy. With EU law on state subsidy and competition law on unfair impacts on unsubsidised private sector operators sitting like twin albatrosses on their shoulders, there is nothing the Scottish Government could do. They would already have pushed the passenger subsidy – at £3m per annum, as far as they dared.
The only way the Scottish Government could assist him would be in the matter of reduced harbour charges but to stay clear of certain challenge under competition law, the only way the government could offer this help would be to reduce harbour charges across the board for the entire west coast of Scotland and take the hit on its own forward budgetary calculations.
So the answer would be ‘Sorry but no can do.’
The newbie sees Western Ferries busily tanking away on their shorter route across the Clyde between their charge-free harbours. He can’t see it happening. He retires from the contract and Dunoon-Gourock now has no town centre service of any kind. Pinning it all on the punt of a successfully competitive town centres vehicle service has ended in losing the lot.
The risks of this campaign to the passenger service provision
The first and very real risk to Dunoon is the one sketched above, the retiral from the contract of the successful bidder, after an unsuccessful period of operation, leaving the town withut the town-centre passenger service to the Gourock railhead which it does need to support its commuting community.
This service could also be lost by two other means.
One is on the grounds of simple economics. It is already cheaper during winter weather disruptions for Argyll Ferries to bus their passengers the couple of miles to McInroys Point and transfer them to Western Ferries than it is to run their own service. And their current boats are much cheaper to operate than would be the case with two vehicle and passenger boats.
Add that insight to our own analysis of the massive overall over-provision on the Dunoon route and it can only be a matter of time before some Scottish Government calls time on the town centres passenger route.
And then there’s Europe. The first European Commissioner to examine the passenger subsidy provided by the Scottish Government was strongly convinced that it was out of line with EU policy. That Commissioner moved before reaching a conclusion and was replaced by a second commissioner who was much better disposed to the subsidy and let it carry on.
But stirring the EU up on this issue could be something of a boomerang, since much seems to depend upon the interpretation of individual commissioners.
The risks to Dunoon of going hell bent for this service
This is where the real damage is being done.
At Thursday night’s meeting, intelligent people were actually saying that this proposed ferry service – for which there is no demonstrable need – was the answer to all of Dunoons woes.
For Sale boards on houses were said to be about the loss of the town-centres vehicle service. That service went two years ago and had been running on a 10% market share of vehicle carryings for some time.
The depressed nature of the town was also attributed to the loss of the former service. People were saying things like: ‘If we have this service we can really sell Dunoon’.
You have only to look at Dunoon to see the long established signs of a town in which local businesses have not reinvested for a very long time; and into which a clueless if well meaning local authority has thrown all sorts of gimcrack excrescences.
The latest of these is a dreadfully alien low-slung lavatory block with an aluminium roof, squatting on a prime position by the bandstand outside the Argyll Hotel in the shapeless and neglected waterfont area where the ferries disembark their passengers.
And right on the joyfully lovely Victorian pier, which the Council visigoths were minded to demolish but is now, we hope, to be restored, a great rectangular wooden council shed hunkers down, blocking the view of the detail of the pier.
The problem with Dunoon is Dunoon – not the absence of an unnecessary vehicle and passenger ferry service to replace the town-centre passenger service to the Gourock railhead that it already has.
This campaign has been a serious distraction to good people, able people and well meaning people, including the campaigners themselves, from paying attention to the town, the critical casualty under their daily gaze.
We quoted Susanne Rice’s quietly heartrending remark to Thursday nights audience at the start of this analysis: ‘Without this, we’d have had nowhere to do’.
And it is this preference by a weak Scottish Government to continue, out of self-interest, to feed a serious deflection of attention to Dunoon for which we hold them most culpable.