The Scottish Government hosted an Information Day in Edinburgh on Friday, 18th October, targeted on private sector ferry operators potentially interested in tendering for a hybrid commercial risk / state subsidised service between Gourock and Dunoon.
Transport Scotland, the relevant wing of government, says of the event:
‘We continue to work with the Gourock Dunoon Ferry Services Steering Group to find long term solutions for the town centre route. Following the publication of the MVA feasibility study, we are engaging with potential operators for a vehicle and passenger service on the town centre route where only the passenger element is subsidised.
‘The purpose of engaging with the market is to share information about the route with potential bidders as well as collect sufficient robust market intelligence to determine how the Gourock-Dunoon ferry service could be tendered for in future.
‘The information day on Friday 18th October was the first step in this engagement process.
‘Presentations were made by Transport Scotland, Argyll Ferries [Ed: the incumbent operator of the passenger service on the route] , MVA Consultancy [Ed: authors of the recent feasibility report on the proposed service], the Dunoon Gourock Ferry Action Group, Argyll & Bute Council and Inverclyde Council [Ed: the local authorities with respective responsibility for Dunoon and Gourock].
‘There were numerous questions asked by the potential operators and a lively exchange of information and opinion.
‘We are now going to have a series of meetings with each of these potential operators, and any other potential operators who express an interest, to discuss their views on the service. Those discussions will include consideration of how the next contract should be tendered and the likelihood of them bidding to provide a vehicle service as well as a passenger service.
‘Once we have received feedback from operators we will be in a better position to discuss and consider a way forward with the Steering Group. We aim to conclude those discussions and map out a clear course of action by the end of the year.’
The signals sent from the event
The ferry operators attending the event were CalMac/Argyll Ferries [Argyll Ferries is a subsidiary of Caledonian Macbrayne, wholly owned by the Scottish Government]; and three private sector ferry companies, Western Ferries; Clyde Marine; and Serco, the current operator of the ferry services for the Northern Isles.
This limited response from the private sector will have been a disappointing response for the Scottish Government and for the Dunoon-Gourock Ferry Action Group.
It suggests that the widespread wisdom is that there is no commercial foundation in what is being proposed.
There are no other potential operators in the wings
For the record, there are no other potential operators of the proposed service waiting in the wings.
The Dunoon Ferry Action Group themselves, in an admirable attempt to recruit commercial interest, met with an outright negative from one of Scotland’s most successful entrepreneurs, whose business portfolio includes ferry services.
We ourselves, in advance of Friday’s session, contacted the UK’s major ferry operators who could have been expected to be interested in any attractive commercial proposition for another service. From the Isle of Wight, to the Isle of Man, to the Pentland Firth to Fife, they had no interest in this proposition.
Our interest was to test our own business analysis. We are theoreticians not ferry operators so, although we had subjected our analysis to robust interrogation, we needed to know if experienced ferry operators saw a form of opportunity to which we had been blind.
They had not. Their absence from the event was not coincidental.
So which ferry operators present were serious about this service?
The answer to this is, for different reasons – none of them.
The tender the Scottish Government proposes to launch before the 3rd October 2014 is for a vehicle ferry service run at the commercial risk of the operator between Gourock and Dunoon town centres , with passenger carryings on the same boat supported by state subsidy.
There is no business case of any kind for the proposed service, competing with the established private sector, unsubsidised Western Ferries service whose costs are substantially lower than anything any competitor could manage on the town centres route. [See ‘A certain loss maker’ below.]
With much higher costs, no operator could conceivably compete with Western on prices or service frequency – operating four services an hour during the daily rush periods.
That rules out the public sector, Scottish Government-owned companies of CalMac and Argyll Ferries – who could not undertake such a commercial risk; and the tender, as currently intimated, reflects the private sector nature of the proposed operators anyway.
The public sector David MacBrayne Group companies, CalMac and Argyll Ferries, will have been there on Friday essentially as a ‘duty’ appearance, to provide information to potential private sector operators on the route.
Of the three private sector companies present, Serco’s real interest is in the massive contract to come for the west coast Clyde and Hebrides ferry services [CHFS], operated by CalMac. It would have been present as a means of maintaining the goodwill of the Scottish Government to advance their later cause.
Serco’s track record in the integrity of their delivery of public sector services in non-ferry service contracts, is now under investigation. It would have no interest whatsoever in the certain loss maker which is the proposed service – unless a covert deal was done where they took the hit on this one in return for getting the bonanza of the west coast services contract. Perhaps, if these routes are indeed unbundled – and CMAL has already prepared the basis of the legal contracts for the leasing of boats in an unbundled scenario – Serco might trade a loss on Gourock-Dunoon in return for getting its pick of the west coast routes?
Western Ferries will have been there out of commercial savviness in keeping tabs on the developing scenario – and cannot have failed to be aware of having been the high-vis elephant in the room.
As the 40 year old successful provider of a popular, service-focused and profitable private sector vehicle and passeneger service on the route – between the outskirts of both towns, Western have a position to protect in this; and have signalled that they will do so robustly.
Clyde Marine will have been there because they’re local and would want to show goodwill.
But Clyde Marine, like Argyll Ferries and Western Ferries, as the three bidders for this service last time out, did not choose to take up the option in that tender to offer a commercial risk vehicle service to carry the subsidised passenger service.
They all tendered a passenger only service on the town centres route – an option which does not exist in the tender version proposed this time.
If none of the three of them saw any business case for the vehicle service element last time out, what’s changed? Why would any of them do it now when they wouldn’t consider it then?
And why would anyone expect Western not to launch a crunching pre-emptive competitive strike before any newbie service had got a boat away from the Gourock pierhead?
Western has just invested in two new boats for the route. Is it seriously going to sit on its hands and let another operator, with a partially state-subsidised service, try to sink it? The essence of Westerns’s situation is that they have no choice but to protect their business and the jobs of their employees, most of whom are local.
The MVA report predicted that any new service could expect to achieve a 56% market share penetration – which, if correct, would kill off Western Ferries’ business.
‘If correct’ is of course the threshold criterion here. The methodology of this entire feasibility study is, to be diplomatic, less than robust; and the suggestion that the proposed new service might take a 56% share of the vehicular traffic market is insupportable on the evidence, even at the level of a chat over a pint.
A certain loss maker
Western runs a route half as long as the one proposed, with four fuel-efficient boats, two of them brand new, on a 20 minute service frequency, early to late daily, seven days a week, 365 days a year.
It owns its own linkspans so it pays no harbour or berthing dues.
The proposed service is twice the distance of Western’s route and would have to be travelled at a fuel-hungry speed of twice Western’s, in order to match its service frequency.
The Scottish Government will be under sharp scrutiny from the EC to ensure that it offers the operator no improper financial cushion for the vehicle service via any manipulation of the subsidy for the passenger service.
That operator will then have to bear the greater cost of providing ferries capable of carrying vehicles and the heavier fuel usage from their weight – as opposed to lighter specialist passenger ferries.
They will have to pay substantial berthing and harbour dues at each of their two termini.
They cannot be competitive on fares.
So what will have been the topics for discussion on Friday?
An educated guess would indicate that the MVA Consultants’ feasibility study for the route will have had to be foregrounded; since it managed to conclude that the proposed service ‘could be feasible’.
There must have been some hilarious frissons when the MVA representative had to eyeball the Western Ferries representative in saying that this flaky conclusion had only been possible by failing to factor in any possibility that Western would take any protective competitive action whatsoever, were such a service to be introduced.
We wonder if there will have been overt or covert friction between some members of the Dunoon Gourock Ferry Action Group and Western Ferries – with the Action Group’s ambitions for this unnecessary service made redundant by the success of the Western operation? The potential confrontation factor here will have been very real.
We expect that Transport Scotland will have sat back and left it to the Action Group to engage in the promotion of its imagined commercial attractions of the route. The Transport Scotland delegation may have majored on looking thoughtful, perhaps taking notes to avoid blush-making eye contact with the three people in the room who actually knew anything about running private sector ferry services.
There will have been a double value to Transport Scotland in letting the Dunoon-Gourock Ferry Action Group lead. It will have gratified the Action Group members to take the stage; and letting them front it up will have saved some of Transport Scotland’s fragile credibility in this excursion.
The David MacBrayne Group reps will have offered helpful information from Argyll Ferries and CalMac’s experience on the route, pitched to impress their paymasters with their loyalty. They will have been covertly taking the measure of the Serco rep. It is CalMac’s core business on the Clyde and Hebridean ferry services – which it has pledged to defend with vigour – that the currently troubled privateer is circling.
Argyll and Bute Council reps are likely to have made it known that the council might be prepared to consider reducing the harbour and berthing dues it collects at the Dunoon linkspan, which it owns. The council has mooted this possibility before – but has not thought it through.
It would have the auditor looking at such a waiver of due fees; and allegations of discrimination if it did not reduce the harbour and berthing fees by the same amount at each of its other piers and harbours.
And if it waived a hefty percentage of fees for its entire harbours portfolio, council taxpayers would see to the end of a collection of undistinguished careers in local government at the earliest opportunity.
As for Western Ferries – Friday is likely to have been a confirming experience, underlining its hard earned superiority on the Dunoon Gourock route, with a service informed by a genuine community service ethos – local employment, low prices, regular reinvestment for the future from a responsible as well as profitable, well managed outfit.
Well that’s really in the hands of the Dunoon Gourock Ferry Action Group.
While Transport Scotland will be talking to the operators present, on a private one-ro-one basis over the next month or so, this cannot affect the lack of any credible business case for what is proposed.
All that might happen would be the laying of foundations for a backstairs deal with Serco in relation to the later Clyde and Hebridean ferry services tender – and anyone who imagined that Western would not take a legal blow torch to any such planned manoeuvre would have to be very naive indeed.
The reality is that what happens next is actually all down to the Dunoon-Gourock Ferry Action Group.
If they persist in what is a certain lost cause in trying to get a second vehicle and passenger ferry service on the route, they will see the current unreliable passenger ferry service for their town become a long drawn out status quo.
If they switch focus now to pressing for the right boats to deliver the passenger right service to the specific destination they want – with the right terminal facilities in support, avoiding the third world cattle-holding stations the public sector prefers – the Action Group can achieve something well worth having for the town.
Such a service could be tendered before next October. Transport Scotland is clearly geared up to go to tender then – it might as well tender for a winner.