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WORK PACKAGE I Draft Final Report September 2009
Rationale
What are the challenges in the current structure?
How can it be improved?
What do potential solutions look like?
What are the challenges to be addressed?
The main argument generally brought forward to support tendering procedures is the need for
reassessment of the cost efficiency of the delivered services. Tender procedures thus aim at improving a prevalent service situation in terms of value for money for the consumer and the public purse.
Towards a tendering route map
Starting point: user needs and requirements Adequacy of fleet reflecting evolution of:
travel characteristics freight transport operation technological change
Standardisation of infrastructure where appropriatebut also Government potential to respond to user needs and
requirements Government goals (e.g. environmental, social etc.)
Subsidised routes require a tender and Public Service Contract (PSC)
Key aspects
Tender specifications and tender route map
Regulatory issues: Competition and procurement
Procurement must comply with EU requirements (Council Regulation (EEC) No 3577/92)
State may interfere in the market via Public Service Obligations (PSO) or Public Service Contracts (PSC)
PSC must be subject to a transparent and non-discriminatory tender procedure
PSC offers opportunity for communities to secure the level of overall ferry service provision they require, within the constraint of available operating subsidy
First step: Identification and definition of PSO/PSC routesService
Service providers
Service
Options Strengths Weaknesses Risks Opportunities
Public operator Sustainable Secure
FundingAdaptabilityFocus Cost structure
InnovationUsersReliability
Limited
Private operator
CapitalTechnologyManagement
Profit6yr contract
SustainableSecure
MarketInvestmentPSC safeguard
Public/private operator
Share risk/reward
Funding Profit6 yr contract
Conflicts Small routesCMALPSC safeguard
Community-run
EnthusiasmCommitment
FundingManagement
Sustainable Small routesCMAL
LA’s SustainableSecure
Funding Tenders Limited
CMAL (ship & port provider)
Econ scaleSafeguards
FundsOwn ships
Right ships? Ship provider Port provider
Tendering process
Transparent and non-discriminatoryAim: Attract the widest range of shipping
expertise and resourcesRationale: A significant number of options
(offers) for the delivery of service to choose from that comply with the set tender requirements
Current challenge: limited evolution and streamlining of tender procedures
Result: High cost of tender procedures to bidders High administrative costs Very limited or no competition in bids State elects responsibility to provide vessels
Service
Operation
Operate only Ships provided by
CMAL/State Advantages
Known ship types Economies of scale in ship
purchasing Certainty of owning ships
and ship availability Issues
Financing ships Procurement of ships Lead time to acquisition
replacement tonnage (CMAL)
Provide and operate Ship provided by operators Advantages
Bidders can present own ideas, including the ship type for a specified route(s)
No requirement for government to own or procure ships
Risk reduction for government in terms of ‘ship management’
Allows differentiation of bids through different management and operating strategies
Issues Application of TUPE Lead time to acquisition
replacement tonnage (operator)
Type of operation
Operation
Best practice depends on route characteristics and selected type of operation (via tender)
Evidence Operators decide on most appropriate ship type for route
based on: Economics of operation Given service level requirements Nature of route and infrastructure Operator knowledge and expertise e.g. Norway, Sweden, Denmark, Ireland etc.
Operator can source ships via charter, ownership, lease, etc.
Recommendation: Leave decisions within key knowledge areas for most relevant actor
Type of operation
BundlingStatus quo: Big bundle, smaller bundle, and single route
tendersPerceived advantages of big bundle
Greater flexibility for vessel deployment and crewing Relief coverage, if ships can be interchanged between routes Allows for network approach in ticketing (if required) Allows for economies of scale/scope Less administrative burden in contract handling
Current challenges Lack of competition in tenders Potentially discriminatory against competitors
Review of bundling Take account of traffic flows Definition of common areas of influence (e.g. geographic, economic) Complementarity of freight and passenger transport
Bundling
Bundling
Bundling
Strengths Weaknesses
Risks Opportunities
Large bundle
Econ scaleSgl contractRelief ship
ExpensiveShips/usersUnattractive to bidders
Private investFunding
Limited
Small bundles
AttractiveFaster process
Econ scaleMultiple contracts6 yr duration
Relief ship InnovationFundingEfficiencyMarket
Single routes
AttractiveFaster process
Econ scaleMultiple contracts6 yr duration
Relief ship InnovationFundingEfficiencyMarket
How to define routes/bundlesPotential and evidence for debundling:
International comparison small bundles or individual routes E.g.: Denmark, Norway, Sweden, etc. Tenders based on a single
route or on a small route bundle basis (e.g. <5/6 routes in same area)
Reduction of entry barrier to small and private operators potential for higher level of competition in tenders Involvement of RTP’s and LA’s as contract authorities Operator investment in ships
Challenges and solutions Mitigation of higher administrative costs through
standardisation of tendering processes (e.g. Denmark) Shift towards simpler and faster tenders Contingency plans within tender requirement (i.e. relief
vessels) Bundling
Service Specifications
Ports (or route) servedCapacity:
Service frequency Sailing and arrival times Service capacity (this is not necessarily the same thing as
ship capacity) Crossing time (e.g. max crossing time)
Performance Service reliability Customer service
Cost: Max price cap Fuel (usually a surcharge allowed)
Service specification does not mean ship specification
Service specificatio
n
Environmental Impacts
Meet the SG’s and EU emission reduction objectives
Incentives for environmental performance in tenders: System of assigning scores to tenders Baseline minimum environmental performance/ standard,
based on legal requirements Environmental auditing and environmental management
systems (EMS)
Implications of ongoing regulatory changesService
specification
Tendering responsibilities
Status quo SG and LA’s have power to provide and procure ferry services. SG procures ferries from the Mainland/LA’s and RTP’s in some
local areas CMAL and LA’s provide ships (private sector also provide ships)
Evidence from other countries Services contracted by national transport agency, or by LAs/RTAs Contracted periods typically extend to 5-6 years ‘Small Islands’ are allowed 12 year contract duration
Recommendation Strategic direction and template for tender strategy rests with SG LA’s and RTP’s could take on responsibilities to run tenders,
especially under a de-bundling scenarioReasoning
LAs/RTPs already experienced in transport tendering LAs/RTPs have better grasp of local requirements
Responsibilities
Tendering responsibilities
Responsibilities
Option Strengths Weaknesses
Risks Opportunities
SG Single central bodyLow costTender expertise
DistantSlow Funding
PoliticalMultiple stakeholders to please
Limited
LA’s Local knowledgeTender expertise
Funding implications
PoliticalFinancial
De-bundlingIntra-county
RTP’s Regional/local Tender expertiseRTP’s include LA’s
Funding implications
PoliticalFinancial
De-bundlingIntra-region(s)
Mixed Tender expertiseInclusive Share tasks
Potential conflicts
CompromisesWho contracts?
Could be workable
Regulator Contracting authority is regulator
Bundle decisionsSeveral bundles and
single routes
ProcessProcess RecommendationsRecommendations
Develop minimum service specification via consultation
Users and stakeholder groups – define PSO’s
Keep it non-prescriptive, but simple/flexible,
allow innovation to attract bids
Specification must deal with risks
Tender processPIN Notice, legal procurement
considerations, ITT etc
Evaluate bids against specified criteriaInvolve LA’s & RTP’s in
selection panels
Select operator/Award of contract
Sign contract with one operator who gets all or most of bundles/single routes
Sign contracts with several operators for each bundle and/or single routes
Outcomes
Likely outcomesBidders depreciate new/nearly new vessels over
life to ensure low initial bid and in expectation they will win in round 2
Dealing with challenges
Old vessels to be disposed of/sold if new operator brings in own vessels
TUPE – Crews transfer if new company wins
Other issues, e.g. marketing, joint-ticketing, integration etc
Monitoring, KPI’s etc
Timetable
Tend
erin
g R
oute
Map
Summary Ferry procurement underlies continued evolutionary processes of
offering and monitoring and reviewing services supplied Subsidised ferry routes require a transparent non-discriminatory
tender EU regulation is in general not a barrier for development, but rather
one more argument that supports the need to implement efficient ferry services
Smaller bundles/route tenders allow for a higher level of competitive bids
Provide (ships) and Operate is today the norm with positive results in terms of service efficiency
Potential implications for: CMAL State-owned ferry companies Employees
, if not competitive under competitive market conditions
Risks – same as for any transport tender Stronger role in tenders for LAs and RTPs within de-bundling
scenario ‘Tender route map’– aim to simplify, speed up and reduce/share the
administrative burden
Structure
Current structure
Key challenges
Subsidies and grants
Future needs and options
Recommendations
Current structure
Services Unsubsidised commercial ferry services (Western Ferries /
Pentland Ferries) Publicly subsidised ‘lifeline’ ferry services (CalMac Ferries Ltd /
NorthLink Ferries Ltd) Unsubsidised commercial bulk shipping Publicly subsidised unit load (container) services (Streamline)
Cargoes Regional differences Traffic imbalances Key products:
Consumer goods for island communities Products for specific industries (e.g. barley, whisky, seafood,
livestock etc.) Fuel Timber Waste Construction material – impact of capital projects
Key challenges
Flexibility of operation and adequacy of services Flexibility, predictability, flexibility and frequency of services Handling of drop trailers Booking and ticketing, communication, terms and conditions Complementarity of traffic (passenger and freight)?
Responsiveness and evolution of infrastructure Ships
Dimensions of freight equipment Open decks for dangerous cargoes (i.e. fuel, hay) Standardisation
Ports and harbours Minimum specification and road connectivity Modernisation of berths (RoRo and bulk) Areas for freight traffic
Diversity and grantsData availability and integrity
Subsidies and grants
Current schemes RET Agricultural discount TRS LoLo Grant (Northern Isles only) Inter-Island Business Development scheme Others including FFG, WFG etc.
Challenges Complementarity of schemes Target groups
Freight generator Freight operator Vessel operator
Creation of level playing fields Continuity of schemes
Future trends
Regional diversity in future freight development depending on islands’ industrial structures Specialized industries (e.g. salmon, whisky, livestock
etc.) Tourism Local needs
Key issues Provision of fuel Time-tables and schedules
Future needs and options
By type of action Modernisation of ship fleet in accordance to evolution in freight transport (i.e. open
decks, max. dimensions) Targeted Demand Management Grant Specific freight services i.e. West Coast RoRo
Priorities by level of impacts based on evaluation of benefits and dis-benefits Large impact level e.g.:
connectivity to Troon replacement of freight vessel on Stornoway Ullapool route, prioritization of bulk shipping with Government support open deck vessel for Arran route
Important impact level e.g.: Service enhancement with night time sailing between Orkney and Inverness Additional night time freight sailings to Islay or West Coast RoRo
Long term improvement e.g.: Focus on freight capabilities on core routes RoRo on route Northern Isles to Rosyth
General structural improvements Restructuring of grants from operator specific to freight specific Complementarity and continuity of schemes (i.e. development of
regional schemes) Potential tenders for freight services i.e. bulk and freight RoRo
West Coast RoRo Map
Possible extension to Larne © Roser & Wilmsmeier, May 2009
Northern Isles freight options
Nigg
Flotta
Burwick
Montrose
Cromarty
Aberdeen
PeterheadInverness
Gills BayJohn O'Groats
St Margaret's Hope
© Roser & Wilmsmeier, May 2009
Hoy
WyreEdayRousay
Sanday
FlottaLyness
Houton
Egilsay
Westray
Burwick
Graemsay
Stronsay
Tingwall
Kirkwall
Shapinsay
Gills Bay
Stromness
Scrabster
Papa Westray
John O'Groats
North Ronaldsay
Westray (Rapness)
St Margaret's Hope
© Roser & Wilmsmeier, May 2009
To Aberdeen
Ro Ro
LoLo
To Aberdeen
To Shetland
North Uist, Benbecula, South Uist & Barra freight options
Uig
Rhum
Muck
Eigg
Salen
Canna
Raasay
Mallaig
Glenelg
Arisaig
Tarbert
InverieArdhmor
Dunvegan
Armadale
Berneray
Kylerhea
Kilchoan
Lochmaddy
Castlebay
Leverburgh
Lochskipport
Lochboisdale
Ard ma Ruibhe
Tarbert (Harris)
Ceann a Gharaidh
© Roser & Wilmsmeier, May 2009
Example: Benefits and dis-benefits WC-RoRo
Stakeholder Group Benefit and Dis-benefit ScaleFreight Generator
+ Alternative option to existing services – commercial benefits based on competition. Could lead to reduced freight rates. Supports corporate carbon footprint objectives. Opens up the trading opportunities between the communities on the proposed route and with the Central Belt. - Potential impact on existing services
12
Freight Operator
+ Alternative competitive options. Potential reduction in freight rates and facility to use drop trailers or containers. Opens up new markets for trailer operators. Benefits from potential increase in inter island trading. - Potential impact on existing services
12
Ferry operator + Key driver would be to target this option on a commercial footing, until detailed market test it is premature to determine if subsidy support was necessary.Abstraction of freight traffic from existing network and loss of revenue. + Vessel would need to carry two tugs for loading and discharge of semi trailers
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Environment and Road
+ Significant environmental benefit from removing trucks from mainland road networks. Reduced pressure on road upgrade and maintenance budgets.
1
Pax and Car + Free up capacity on existing routes 1Cost to Govt + In the long term savings from the reduction in subsidised
services and alternative vessel specifications due to reduced volumes of freight on existing routes. - In the short term potential need to increase subsidy on existing routes due to reduction in freight volumes.
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[1] 1 = Very Significant, 2 = Significant, 3 = Slight
